Northern Electric spun off a subsidiary in 1934, Dominion Sound Equipment, originally to develop equipment for sound in movies. Over time, the division evolved in an attempt to use its design talent and manufacturing ability on third party projects. In 1937, this aspect became the Special Products Division. For many years the SPD was used as Bell Canada's R&D arm, although as before, most telephony designs were created at Bell Labs in the US.
In 1949, the United States Justice department attempted to force AT&T to divest itself of its Western Electric subsidiary. As a result of this legal action, Western Electric sold its shares in Northern Electric to Bell Canada. In 1957, Northern Electric started its own research and development labs in Belleville, Ontario. Two years later, Northern Electric created the Northern Electric Research and Development Laboratories in Ottawa. In 1971, Bell Canada and Northern Electric combined their R&D organizations and formed Bell-Northern Research.
BNR's researchers pioneered the view that a telephone switch (PBX or Central Office) was best regarded as a special form of real-time computer, a view that was considered to be highly innovative in the 1970s. Although George Stibitz had foreseen this evolution at AT&T in the 1930s, subsequent generations of engineers, prior to the 1970s, regarded the switch as a piece of hardware, best hard-wired, to handle the basic telephone call where two parties connect, speak and hang up.
In the 1960s, however, this view was coming under a great deal of strain. Increasingly, telephone users wanted to conference call, forward, and record voice greetings, so common today. Such features required more flexibility in the controller, leading to the development of computer-controlled switching machines, notably the Bell Labs − Western Electric 1ESS. These early machines still had an analog, usually electromechanical switching matrix because the technology of the time did not permit the cost-effective dedication of a filter-codec to each subscriber. (Transmission systems had already gone digital, for example the D4 carrier system.)
(Request for improvement: please fill in the evolution path through the Western Electric ESS switches, an important step before digital switches. See talk pages for details.)
Northern Electric introduced its first electronic central office system in 1969 with the SP1. The SP1 had a fully computer-based electronic control system, thus the name "SP," short for "stored program." Its switching matrix was still electromechanical. Rather than the reed relay matrix of the 1ESS, it used the minibar, a version of the crossbar switch.
BNR introduced the Meridian SL-1 in 1975, the world's first all-digital PABX aimed at medium sized businesses. The SL-1 was fully digital in both control and switching. As such the SL-1 was smaller, much more reliable, and offered many more features than an equivalent electromechanical system.
The SL-1 design was superseded by the DMS-100 central office switch and other members of the DMS family of products (DMS: digital multiplex system). DMS extended the technology by fully integrating switching and transmission. This was a major advance that changed the way systems were built.
Through the 1980s attention turned from pure hardware to software development. The BNR Toronto lab introduced Meridian Mail in the 1980s, which went on to be a very successful product and forced the introduction of similar products from other telephony vendors. They later added automatic call distribution and other similar services.
At its zenith in the early 1980s, when it opened R&D centers in Mountain View, and later in Research Triangle Park and Richardson, Texas, BNR's notable American employees included Whitfield Diffie, a noted authority on cryptography, and Bob Gaskins, who invented PowerPoint at BNR, using new bit-mapped displays to make presentations to management.
At that stage, the culture of Bell-Northern Research resembled that of Apple Computer, in that employees were rather lightly-supervised, and a rather collegial culture prevailed. This was found to increase responsiveness, both to customer needs for new technology, and the effective maintenance of existing technology. But in a similar fashion to Apple, this culture grew its own corporate immune system. Basically, abuse of scientific and technical freedom caused management to increase control, not in the form of traditional work rules, but by more detailed emphasis on schedule and deliverables, and a de-emphasis on the engineer's ability to "push back" and delay schedule for technical reasons.
BNR's products were architecturally based on Complex Instruction Set (CISC) architectures prevalent in the 1970s, and on a series of underlying technologies. This was greatly influenced by the late 1970s success of the DEC VAX computer, a highly "elegant" and rather layered technology, realizable in a range of power. In the early 1990s, under Nortel CEO Jean Monty, the software for the flagship DMS product was segmented into layers to improve maintainability of the product.
With the formation of Bell Canada Enterprises (later shortened to BCE) in 1983 as the parent company of Bell Canada and Northern Telecom, BNR in Canada was jointly owned 50-50 by Bell Canada and Nortel. BNR ceased to exist as a separate company in the 1990s, as Nortel assumed a majority share in BNR, and was slowly folded directly into Nortel, which acquired the remainder of BNR when BCE divested itself of Nortel. Unfortunately, the collapse in demand for Nortel products in the wake of the bursting of the dot-com bubble, which occurred after aggressive spending on acquisitions and hiring under CEO John Roth, required Nortel to trim its workforce from 96,000 to 35,000 people (as of 2006).
"Build it strong / and build it stout / out of things / you know about" is a saying reputed to come from BNR.