Stanford Research Institute

A History of Stanford Research Institute

Introduction

Stanford Research Institute (SRI) is a central institution in the history of operations research and the management sciences (ORMS). SRI researchers contributed to the theoretical and technological foundations upon which today’s analytics practices are built. They worked on projects for a diverse set of clients, including ones in the military, finance, commercial recreation, travel and tourism, manufacturing, and transportation. By the 1960s SRI had an international reputation for high quality objective work across the physical and social sciences.

This essay focuses on those aspects of SRI’s history as they directly relate to ORMS. Even here the author has had to be necessarily selective in what to include. Readers seeking a comprehensive overview of SRI’s history are encouraged to consult Donald L. Nielson’s excellent A Heritage of Innovation: SRI’s First Half Century, Menlo Park, Calif.: SRI International, 2004.

History

Founded on October 24, 1946, Stanford Research Institute was the convergence of two parallel efforts in California to start a non-profit institute of applied research and development for industry in the western United States. One of those initiatives was the short-lived Pacific Research Foundation of Southern California, founded by three former Lockheed employees in the 1940s. While seeking sponsors, the trio was introduced to a group of Bay Area industrialists having similar plans for a research institute at Stanford University. The two groups decided to work together upon realizing their common goals, forming SRI.

The efforts of these two groups nearly failed, however. Critically, SRI lacked an endowment to help fund operations. Industry expressed little interest in making financial contributions to a non-profit research institute, something unanticipated by SRI’s founders. In response SRI began taking on government contract work. This angered several board members, especially Donald B. Tresidder, the president of Stanford University. Tresidder believed that an overdependence upon government work might place limits upon academic freedom (at the time SRI was administratively another department of the university, and not the quasi-independent firm it would soon become). Tresidder’s position notably contrasted with that taken by Johns Hopkins University’s Operations Research Office, itself founded a few years after SRI, which embraced government work. SRI’s board also expected Stanford University faculty to work on SRI projects. Yet faculty were wary of having research objectives dictated by clients. How its founding board worked through these challenges meant that SRI would take an early lead in applying ORMS to non-military and international projects long before other institutions.

Among those solutions explored by the board to the above challenges, pen and paper studies in industrial economics proved the most successful. Industrial economics studies (or “techno-economics” as it was called at SRI) involved less overhead compared to industrial R&D. Clients were also more open to funding these sorts of studies due to the low risk involved, with some clients going on to fund more capital-intensive research projects based upon the findings of these studies. The board also realized that there was strong demand abroad for industrial economics work, particularly in recovering Europe and the developing world. SRI’s Economics Division, which was primarily staffed by industrial engineers from California’s aviation industry and recent MBAs from Stanford Business School in SRI’s first decade, worked on the majority of these projects. By the end of the 1960s SRI’s Economics Division became the center of a cluster of related initiatives in ORMS collectively referred to as the Business Group.

After SRI’s separation from Stanford in 1970 the institute continued to grow. Yet it still suffered from the challenges of maintaining a steady revenue stream without an endowment to buffer down-cycles. Growing competition from accounting firms who moved into management consulting during the 1980s and 1990s combined with a widely-held misconception that SRI focused on technology consulting led to the separation of the Business Group in 1995 into a for-profit subsidiary. The formation of this subsidiary, SRI Consulting, effectively marks the end of ORMS at SRI.

Weldon B. “Hoot” Gibson

Perhaps more than any other individual Weldon B. “Hoot” Gibson (1917-2001) helped establish SRI as a global leader in ORMS. Born in Eldorado, Texas, Gibson attended Washington State University as an undergraduate. He later served as the director of materiel requirements in the U.S. Army Air Corps and was the assistant director of the U.S. Air Force Institute of Technology in the 1940s. He earned a Ph.D. from Stanford Business School writing his dissertation on labor productivity in airframe production.

Gibson joined SRI as its third employee and head of the Economics Division. In 1947, Gibson also became chair of SRI’s international programs, whose first project was a study for the Italian government. Beginning in the 1950s Gibson launched a series of over 80 international conferences, beginning with the International Industrial Conference which he co-founded with Henry Luce, the publisher of Time (see below for more on SRI’s international work and the IIC).

In honor of his legacy SRI created the Weldon B. Gibson Achievement Award in 1999. Recipients of the Award have included Doug Engelbart, H. Edwin Robison, Dennis Finnigan, and the team that created a banking automation system for Bank of America.

Notable Achievements in ORMS

Corporate Planning

One of SRI’s greatest contributions to ORMS is in the area of corporate planning. The first initiative was the Long Range Planning Service (LRPS) started in 1959. LRPS was a subscription, non-proprietary research service featuring annual studies across a range of subjects. LRPS, later renamed the Business Intelligence Program, would continue through the 1990s. Out of LRPS came two other contributions: decision analysis and scenario planning. While SRI researchers had collaborated with groups at Stanford and Harvard working on decision analysis since 1963 it was not until 1968, at the encouragement of Ronald Howard and Howard Raiffa, that SRI established its Decision Analysis Program, headed by James E. Matheson of Stanford. Other individuals associated with SRI’s decision analysis program included Carl Spetzler and Paul Skov. The Program reached its peak by 1981 and largely ended a few years later with the departures of Matheson, Spetzler, and Skov.

Where decision analysis is a quantitative approach to understanding alternatives, scenario planning emerged as a qualitative investigation of potential outcomes by fleshing out alternative futures that emphasized the impact of environmental factors. These qualities made scenario planning especially attractive for clients in the petroleum industry with the onset of the 1970s energy crisis.

Finance

SRI significantly impacted the shape of finance through several projects. The first of these was an automated banking system called ERMA (for Electronic Recording Machine, Accounting), whose MICR, machine readable font is still the world’s standard used on checks and other financial instruments. Developed for Bank of America during the early 1950s, as completed ERMA weighed approximately 25 tons, contained tens of thousands of diodes and vacuum tubes, and was capable of printing bank statements at a rate of 600 lines per minute.

ERMA’s success helped established SRI as an innovator in banking. In the 1960s, SRI developed a computerized financial planning service for General Electric that ran on the GE Time-Sharing System, and SRI also worked on development of the interbank communications network SWIFT. In 1974, Carl Spetzler (of SRI’s Decision Analysis Department) formed the Financial Planning and Management Unit. One of major breakthroughs to come out of this unit was Merrill Lynch’s cash management account, which redefined both who could become a bank and also the types of financial services banks offered to clients.

Computing

SRI made several contributions that have fundamentally shaped computing. The institute was one of four original sites of the ARPANET, the world’s first general purpose computer network. Along with other dissimilar networks, ARPANET formed the transport system for today’s Internet. Douglas Engelbart is also credited with the first demonstration of the mouse and interactive computing, which since 1984 have formed the essence of all personal computing.

SRI also has a long history of research in the field of artificial intelligence. Charlie Rosen and Ted Brain, after meeting with Frank Rosenblatt of Cornell, started the Artificial Intelligence Center at SRI in the early 1960s. Over its history AIC’s largest single funder was DARPA. Projects included the MINOS II, an early analog pattern recognition system. MINOS II included of an optical preprocessor that allowed the device to sample up to 1024 images. Later AIC projects led to innovations in natural language processing, problem solving, scene analysis, navigation, and expert systems. Notable achievements here include PROSPECTOR, a mineral deposits knowledge system and 1984’s FASTUS text extraction system.

Military

SRI’s military work was organized around three ongoing initiatives stretching from the 1950s through 1980s: the Combat Development Experimentation Center (CDEC), the Naval Warfare Research Center (NWRC), and the Strategic Studies Center (SSC). Based at Fort Ord, California, CDEC evaluated new tactical strategies on behalf of the U.S. Army’s Combat Development Command. NWRC, sponsored by the U.S. Navy, evaluated over 250 different systems for their strategic value. A notable outcome of this work was the Aegis Weapon System. NWRC also facilitated the adoption of computers at the tactical level within the Marine Corps. In contrast to the CDEC and NWRC, the SSC was initiated without a specific military sponsor. Led by Richard B. Foster for most of its 30 year history, the SSC made numerous contributions to the area of military planning, including the “spectrum of conflict” which stressed military preparations for a range of potential conflicts instead of a few specific contingencies.

Industry

During its first fifteen years SRI’s biggest client in ORMS was the Southern Pacific Railroad (Don Russell, president of the Southern Pacific, was an SRI board member). Institute researchers developed a model of the railroad’s freight car operations that ran on an IBM data processing system. To provide the system with data regarding the geographical location of railcars, SRI researchers developed the “Videograph,” a system of video transmission that captured images of moving trains for later processing. Other transportation work included early work on United Air Line’s Apollo reservation system, done in partnership with the Teleregister Corporation of Stamford, Connecticut.

In July 1953, Walt Disney Studios asked SRI to assist with the planning for Disneyland. Known internally among SRI staff as “Project Mickey,” this work contributed to the Studio’s decision to locate the park on a remote site near what was then the agricultural community of Anaheim in Southern California’s Orange County. Disneyland would be the first of many projects completed by SRI in recreation and tourism, including a controversial study of chartered bus service between the San Francisco Bay Area and casinos in Reno, Nevada.

International Work

SRI applied ORMS to international economic development through a series of conferences, councils, and associations, as well as ongoing working arrangements with individual governments in the developing world. Through these avenues SRI played a key role in the development of the economies of Taiwan, Japan, India, several nations in Africa, and Saudi Arabia, among others. Funding for international work at first came from American philanthropic institutions such as the Ford and Rockefeller foundations, with both industry and the federal government later becoming significant sponsors. The Ford Foundation funded a study of small industrial firms in India and Pakistan during the 1950s, and the Rockefeller Brothers Fund sponsored several projects managed by SRI in Equatorial Africa around the same time. Later, the United States Agency for International Development (USAID) would become a major sponsor of African projects.

One of the least known examples of industrial sponsorship for SRI’s international work came in 1957 when Henry Luce, the publisher of Time, Life, and Fortune, provided the institute with funding to host the first International Industrial Conference. The quadrennial conference was held in San Francisco over the next four decades. Widely attended by foreign governments and industry, the IIC was largely unknown within the United States. SRI also sponsored other conferences including the Pacific Basin Economic Council (founded 1967), and the Japan-California Association (founded 1965).

Compiled by: James D. Skee

Edited by: Linus Schrage

Links and References

Gibson, Weldon B. “Acceleration of Airframe Production as a Function of Direct Labor Application and Productivity.” PhD diss., Stanford University, 1949.

Gibson, Weldon B. SRI, the Founding Years: A Significant Step at the Golden Time. Los Altos, Calif.: Publishing Services Center, 1980.

Gibson, Weldon B. SRI, the Take-Off Days: The Right Moves at the Right Times. Los Altos, Calif.: Publishing Services Center, 1986.

Lowen, Rebecca S. Creating the Cold War University: The Transformation of Stanford. Berkeley: University of California Press, 1997.

Maisel, Charles J., and Treva W. Jones. "A History of Stanford Research Institute." Menlo Park, CA: Stanford Research Institute, 1962.

Nielson, Donald L. A Heritage of Innovation: SRI’s First Half Century. Menlo Park, Calif.: SRI International, 2004.

Platt, William J. "Industrial Economics and Operations Research at Stanford Research Institute." Journal of the Operations Research Society of America vol. 2, no. 4 (1954): 411-418.

“Weldon Gibson, a founder of Stanford Research Institute, dies.” Stanford Report, May 9, 2001. https://news.stanford.edu/news/2001/may9/gibsonobit-59.html (accessed July 30, 2018).

Associated Historic Individuals

Gray, Paul
Harrison , J. Michael
Howard, Ronald A.
Matheson, James E.
Pierskalla, William P.
Puterman, Martin