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Developing the next generation of large-scale software systems will change the patterns of work in system development organizations. We therefore expect the major systems engineering problems to be solved will require organizational solutions that accomodate advanced software development tools, flexible manufacturing techniques for system life cycle engineering, and knowledge-intensive strategies for managing large system development projects. Over the past seven years, we have created an experimental organizational environment for developing large software systems that allow us to encounter these problems, and find effective solutions or interventions. We call this organizational environment the System Factory. We have developed and evolved the System Factory through seven generations of graduate student staff, totaling more than 500 in number. In this report, we describe what the System Factory is, the problems we have investigated, the results and example products of this research, potential future applications of the System Factory approach, and finally our experiences in transferring this technology.