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Innovation Starts—And Ends—With Mindset

2016 April 24
by Greg Satell

In her bestselling book Mindset, psychologist Carol Dweck argues that people who see their skills as a fixed set of strengths and weaknesses tend not to achieve much. On the other hand, those that see their skills as dynamic and changeable are able to continually grow their abilities and soar to great heights.

Businesses are the same way. Most see their business models as a permanent facet of their DNA, so when their environment changes, they fail to adapt. That’s why 87% of the companies on Fortune’s original list of 500 top firms are no longer there. Over time, most companies get better and better at things that people want less and less.

Of course, that’s not always true. Firms like Procter & Gamble, General Electric and IBM still thrive after a century or more. The reason they endure is that they don’t see their business as fixed, but have continually reinvented themselves and are vastly different enterprises than when they started. In an age of disruption, the only viable strategy is to adapt.

The Innovator’s Mindset

Chester Carlson was a prototypical inventor. Self taught and brilliant, he worked for years tinkering with his invention even while holding down a day job and going to law school at night. When his wife grew tired of the explosions he made mixing chemicals in the kitchen, he moved his work to a second floor room in a house his mother-in-law owned.

After working on it for over a decade, he finally teamed up with the Haloid corporation. They built a superior product, but it cost nearly ten times what competitive machines did. They tried to interest the great companies of the day such as Kodak, IBM and GE, but all demurred. There just didn’t seem to be a value proposition that would justify the cost.

Then Joe Wilson, the President of Haloid, had a billion dollar idea. Instead of selling their machines, why don’t they lease them? The idea took off and the company we now know as the Xerox Corporation was born.

Over the years, Xerox continued to innovate along its business model. New products came out that could print more copies faster, which not only increased customer satisfaction, but made Xerox a lot more money. It plowed those profits back into more innovation, a legendary direct sales operation and even better and faster copiers.

The Corporate Mindset

In 1961, the company listed on the New York Stock Exchange and, as it continued to grow by leaps and bounds, it attracted a cadre of highly qualified executives who honed its model further. Because it made the bulk of its money on the number of copies printed, that became Xerox’s key metric of success.

So when new Japanese competitors arrived with cheaper, slower copiers for smaller businesses, it didn’t seem like much of a threat. After all, those customers couldn’t generate enough copies to be attractive to Xerox anyway. But before long, big firms started to see the benefits of machines that could fit in each office, rather than taking up an entire room.

By the late 1970’s, Xerox’s copier business was in trouble, but it had an ace up its sleeve. Its PARC division had developed a new kind of computer, the Alto, that had many of the features we would recognize today, such as a mouse, a graphical user interface and an ethernet that could link the machines together in a network.

Yet once again, the corporate mindset took over. Although there was no lack of interest in the Alto as a standalone machine, the executives at Xerox didn’t see its potential. Instead, they integrated it into a much bigger system, the Star, which cost $16,00 per unit and $50,000 to $100,000 for a full installation.

In short order, IBM launched the PC, Apple came out with the Macintosh and Xerox’s computer business—as well as its position in the top echelon of American industry—was finished.

The Simple-Mindedness Of Single-Mindedness

Within Xerox, PARC was like a world unto itself. While the headquarters in Stamford, Connecticut was a bastion of corporate staidness, a 1972 profile by Stewart Brand portrayed the hackers at PARC as freewheeling hippie geniuses, creating their own personal brand of revolution with long hair and bare feet.

And true revolutionaries they were. Up to that point, computers were massive machines that were divvied up among a group of highly trained specialists through time sharing systems. But the visionaries at PARC saw that computers could become much simpler devices that ordinary people could use by themselves. A full two thirds of the Alto’s power was devoted to the display to make it as user friendly as possible.

But in their own way, the hackers at PARC were just as myopic as the suits back in Stamford. For example, two of the scientists at PARC, Dick Shoup and Alvy Ray Smith, were working on a new graphics technology called SuperPaint. Unfortunately, it didn’t fit in with the PARC’s vision of personal computing, the two were ostracized and eventually both left.

Smith would team up with another graphics pioneer, Ed Catmull, at the New York Institute of Technology. Later they joined George Lucas, who saw the potential for computer graphics to create a new paradigm for special effects. Eventually, the operation was spun out and bought by Steve Jobs. That company, Pixar, was sold to Disney in 2006 for $7.4 billion.

Why We Fail To Adapt

It’s easy to look at any of these stories and say, “how could they be so dumb?” It seems obvious, in retrospect, that there would a large market for desktop copiers, that personal computing would grow to be a major industry and that tremendous value would be unlocked from sophisticated computer graphics.

Yet the unfortunate truth is that we evolved to survive, not adapt. We fear losing what we have more than we desire winning something we don’t. The better we get at doing one thing, the less we want to work on something else.What’s more, we tend surround ourselves with people who think like we do and they reinforce our inherent biases.

The point is that it takes work to change your mindset. The executives at Xerox were trained at business school to maximize profitability by optimizing the value chain and those around them thought the same way. The scientists at PARC were part of an early culture that was hell bent on developing personal computers, advanced graphics weren’t on their radar screen.

It’s easy to complain—as so many do—that others “don’t get it.” We love to talk about disrupting markets and industries, but rarely put forth the effort to disrupt ourselves. That requires a change in mindset and, for most of us, it’s just too hard.

– Greg

10 Responses leave one →
  1. Tyrone permalink
    April 24, 2016

    Brilliant Greg and scary!
    Well elucidated point about how we all our myopic.
    Can we train ourselves to not be conditioned?

    [Reply]

    Greg Reply:

    Good question! I think the first step is understanding that the problem exists and doing the best we can to expand our horizons. I don’t know if the problem can be eliminated altogether, but it can surely be minimized.

    – Greg

    [Reply]

  2. April 28, 2016

    The trick is to understand what “business” the brand really is in.

    If Kodak knew they were in the “Memories” business, they wouldn’t have to shut shop.

    If Xerox understood they were in the “Productivity” business, they would have been making personal computers, too.

    [Reply]

    Greg Reply:

    I see what you’re saying, but I would quibble with that a bit. Kodak, for example, invented digital cameras. Xerox did build personal computers, in fact, they were the first ones to do it. Their problem was that they were thinking about productivity on a much larger scale than the market would bear.

    The Xerox Star was much more than a personal computer, it was an entire installation that offered network connectivity, graphics, laser printing and a lot of other features that would soon become standard. As it turned out, businesses who had never worked with personal computers weren’t willing to fork over $50,000-$100,000 for a network of them. It was too much, too early.

    – Greg

    [Reply]

    Sumit Roy Reply:

    Greg:

    Kodak kept thinking they were in the camera business and forgot to include a “sim card”. If they thought beyond cameras, they would have had a social media site called “Kodak Moments” and given Instagram a run for it’s money.

    Xerox’s metric of “Productivity” was stuck with how efficiently paper copies could be made. They didn’t seriously the increased office productivity of the personal computers they invented.

    I thought I’d take this occasion to mention that I do enjoy reading your posts, Greg.

    [Reply]

    Greg Reply:

    Thanks Sumit. I’m glad to hear that you enjoy the site!

    However…

    I still don’t buy that line. I’ve heard it before and researched it thoroughly. There are some facts to support it. For example, Xerox’s business model was based on how many copies were printed and that did become a real problem when they faced disruptive competition from Canon and Ricoh in their copier business. They really got blindsided by that.

    Yet at the same time, there is significant evidence against the “Marketing Myopia” hypothesis from Theodore Levitt’s famous 1960 HBR article when applied to Kodak and Xerox (as well as some other problems with it generally that I wrote about here.)

    In the case of Xerox, by the 1980’s, their copier business was already in decline, but their laser printing business had already eclipsed it. The company was highly focused on turning the innovations coming out of PARC into productivity products for business, which led it to ignore other significant innovations like SuperPaint (but not the Ethernet, which clearly had productivity implications).

    Kodak, for its part, aggressively moved into digital photography and it’s line of EasyShare cameras were market leaders, but that business wasn’t profitable enough to make up for the losses in the film developing business. The problem seems to be that digital photography itself wasn’t a great opportunity and most of the profits went to social platforms like Facebook and Instagram (I wrote about that here). Can you think of other companies that ended up making a lot of money from digital photography.

    You could argue that a social platform is “memories business,” but I think that’s a bit of a stretch. In any case, it’s certainly not something that would have been obvious to someone in a “memories business.”

    I think this is an important point because it’s always seems that there’s a simple explanation for a business failure, but the reality is often more complex and there are few simple answers. If you look through the business literature you can find strong arguments that businesses should seek out “blue oceans” and other arguments that they should “strengthen the core.” I imagine similar issues were hotly debated within Xerox and Kodak. But it’s hard to see how you can take those two contradictory ideas and come up with an obvious way forward.

    After all, Xerox did invest in PARC and developed much of the technology that led to the personal computer, Microsoft Office Suite and so on. Kodak invented digital photography. You can’t say that there wasn’t a will to innovate and shape markets. The plans just didn’t work out. Smart people sometimes make bad decisions.

    There is, however, one little told anecdote that might explain a lot. When the PARC team first presented the Alto at a Xerox executive conference—with great fanfare I might add—an especially perceptive observer would have noticed something interesting happening in the demo room. The executives walked through politely, but their wives, many of whom were former secretaries, were transfixed.

    When you think about it from a 1970’s perspective, it’s an especially telling anecdote. The first “killer apps” for personal computers automated basic office work, something senior executives spent little time on and were unlikely to think of as important (You mean this thing is for typing letters? I already have a secretary to do that!). So it wasn’t exactly clear how personal computers would contribute to productivity to a 1970’s executive. In fact, they were right. The productivity gains didn’t come until the late 90’s, 20 years later.

    I remember a consulting project I did in Russia in 2004. One of my suggestions was that the salespeople needed to send their own emails and that they simply couldn’t be responsive enough to customers if they relied on an assistant to handle all of their correspondence. It seems like a pretty obvious point, but I got quite a bit of pushback. The company leadership was, in fact, appalled at the notion. To them, sending your own emails was a diminishment of status, which customers would look poorly upon. (I should mention though, this was not a widespread belief in Russia in 2003.)

    As Chris Dixon put it, the next big thing always starts out looking like a toy, which is why we often ignore it.

    – Greg

  3. May 13, 2016

    Great thoughts, Greg. It’s hard to disagree with any of this.

    However, I don’t think you go far enough. I would argue that the end of innovation is with customer adoption. Sure, an organization needs an adaptive mindset geared towards constant change. But that mindset needs to be oriented toward the human beings organizations serve. The consumer ultimately decides to adopt the innovation or not.

    So it’s not just a new mindset, but a specific type of mindset organization need to have. I’m sure you get that – I just found it missing for this piece.

    [Reply]

    Greg Reply:

    I See what you’re saying, but I’m not sure that’s true. Some great innovators have not been very customer focused. Steve Jobs and Henry Ford come to mind in the business world. Then you also have scientists, like Einstein, Darwin and Watson and Crick.

    So I guess it comes down to what your definition of innovation is. I consider it to be novel solutions to important problems, so I guess if you’re trying to solve a customer related problem, then a customer focus is very helpful, but even then not absolutely essential. At the same time, there are many problems that are not customer related.

    – Greg

    [Reply]

    Jim Reply:

    Let’s ditch the term “customer” for a second and just talk about human problems.

    I agree with your definition of innovation, but in order for the problem to be solved people have to adopt the innovation. Jobs we intently focused on the human experiences he was creating. Ford was aiming to solve the human problem of affordability, increasing adoption of his invention. Edison, too, was hugely concerned with adoption, recognizing that people couldn’t use his light bulb if they didn’t have electricity in their homes. He sent teams of people into homes to observe how they solve the job of being able to see after dark.

    Just consider that there is no correlation between R&D spend and innovativeness or business success. People funding those R&D efforts may say, “Look – I’m adapting, I’m disrupting.” (I’ve heard that many times coming out of corporate R&D labs). But little that create solves a human problem, other than what the R&D team is going to work next quarter.

    My overall point is the ultimate end of innovation lies outside of your organization with human adoption. That should be part of the mindset shift you’re calling for: creating actual value for both individuals and for the organization.

    [Reply]

    Greg Reply:

    I see your point, but still disagree. There are many different ways to innovate and a strong customer focus is certainly one of them. Some very innovative people are simply motivated by solving a particular problem.

    One example would be Robert Dennard, who was very focused on chip design and figured out a way to store a bit of information with just one transistor and one capacitor. The idea would eventually become what we know today as DRAM memory and our computers couldn’t operate without it. Or look at James Allison, who developed immunotherapy, which has been called a “miracle cure” for cancer. He was certainly motivated to eliminate human suffering, but its hard to make the case that while he was studying receptors on the surface of cells he was customer focused. I recently had an extended conversation with Dharmendra Modha about developing neuromorphic chips. In nearly 2 hours of conversation, I don’t think the word “customer” came up once.

    Where I think the confusion comes in is that for the past 20 or 30 years, we’ve been innovating along a fairly simple paradigm known as Moore’s law and there has been a tremendous amount of innovation focused on end users. That paradigm, however, is ending and we have very, very big problems to solve, so focus is shifting to fundamental innovations.

    Beyond information technology, we have other very fundamental challenges, like energy storage and new tools, like genomics, nanotechnology and robotics to help us solve them. These are all very big things we have to deal with before anyone can start thinking about end user applications.

    – Greg

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