The Problem with Fitting New Ideas Into Old Business Models

Malcolm Gladwell retells the story of the Xerox Palo Alto Research Center in the latest issue of the New Yorker (it’s readable behind a paywall here). The story of PARC is fascinating, and Gladwell provides a nice twist to it. One of the main threads in the story concerns their invention of the laser printer.

Often when we hear about PARC, the moral of the story is that they made a series of unbelievable inventions, and then completely dropped the ball when they tried to commercialise them, failing miserably, and leaving others like Apple and Adobe to make the money from these ideas. Here I am last week with one of these great ideas – that’s the world’s first Ethernet cable – still there at PARC:

In addition to ethernet, people at PARC came up with the graphical user interface, portable document formats, and they greatly advanced the technology of the mouse, invented by Douglas Engelbart. Xerox didn’t make much money off of any of that work.

But they did make a whole heap of money from another great invention – the laser printer. Some of the key quotes in the story explain why this was different. First, Gladwell talks about Gary Starkweather, the guy that came up with the idea for the laser printer. He was highly creative, and he cranked out a lot of ideas – which led to this problem:

… someone had to turn his tap off: the interests of the innovator aren’t perfectly aligned with the interests of the corporation. Starkweather saw ideas on their own merits. Xerox was a multinational corporation, with shareholders, a huge sales force, and a vast corporate customer base, and it needed to consider every new idea within the context of what it already had.

In other words, you have to be able to embed new ideas into the network of the economy. Doing this requires you to break connections that people already have with old ideas. It’s hard for big companies to do this for the reasons Gladwell discusses in the quote. It’s hard for small companies because they don’t have the clout to get their ideas heard in the first place.

This is a big part of what makes innovation hard.

Gladwell then quotes Nathan Myhrvold to expand on this point:

“Xerox did research outside their business model, and when you do that you shouldn’t be surprised that you have a hard time dealing with it – any more than if some bright guy at Pfizer wrote a word processor. Good luck to Pfizer getting into the word-processing business. Meanwhile, the thing that they invented that was similar to their own business – a really big machine that spit paper out – they made a lot of money on it.” And so they did. Gary Starkweather’s laser printer made billions for Xerox. It paid for every other single project at Xerox PARC, many times over.

This leads to a key point. PARC is still there, and they are still coming up with brilliant ideas. It has actually been an incredibly successful operation for an extended period of time. By focusing on the ideas that didn’t work so well for them, we recreate a myth of innovation – that every idea that we have must work for us to be successful.

One last quote from the story – Gladwell talks about the views of Dean Simonton, a psychologist that studies creativity, who says “Quality is a probabilistic function of quantity.” That’s a fancier way of saying what Linus Pauling said much earlier – “The best way to have a good idea is to have a lot of ideas.”

Myhrvold says that the way to judge an innovative organisation is not by the failures, and not by the ideas they had they couldn’t figure out how to bring to market. Instead, he thinks we should judge them by the ideas that they do actually execute successfully.

By that measure, PARC has been great, just on the basis of the laser printer. It’s not reasonable to expect every idea to work. Ideally, if one of your ideas eventually becomes successful, it would be good to have it happen for you rather than for someone else.

Nevertheless, successful innovation requires mistakes and misfires. If you have enough of those, and, more importantly, if you learn from them, then you’ll also hit on your share of great ideas that work. That’s the real lesson in the story of PARC.

(interestingly, PARC writes about this story today too! They stress the importance of open innovation in getting around some of these problems, which I think is a critical part in this story.)

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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7 thoughts on “The Problem with Fitting New Ideas Into Old Business Models

  1. Thanks Tim, a great read as ever. There is a certain amount of hand-wringing and self-flagellation about (barriers to) innovation, and I think you strike a v. good balance. On a more general note, is anyone surprised that elephants (be they corporate or government) don’t tapdance. It’s not in their skillset…

  2. Thanks for the comment Dwight. The issue about tapdancing elephants is one that came up repeatedly while I was in Palo Alto last week. There are a few organisations that seem to manage it, but not very many. It’s a huge challenge.

  3. Hi Dwight, True, but that’s where open innovation comes in — it provides a framework that allows companies to innovate beyond their comfort zones and existing infrastructures.

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