“Xerox could have owned the entire computer industry, could have been the IBM of the nineties, could have been the Microsoft of the nineties.” Steve Jobs
When Xerox opened their Palo Alto Research Center (PARC) in 1970 it brought together talented computer engineers, scientists and programmers who were tasked with inventing the computing technologies of the future. And they did an amazing job. Innovations including Ethernet, laser printing, a prototype PC, the desktop paradigm and famously the graphical user interface (GUI) and the computer mouse were all developed at Xerox PARC.
So why wasn’t it Xerox rather than IBM, Microsoft and Apple that dominated early computing? Why did the benefit of those important innovations flow to other companies and not the company that funded the research in the first place? Why was it Steve Jobs, who famously visited Xerox PARC in 1979 and was so impressed with the GUI/mouse concepts that he saw there, that had the vision to see the potential and incorporate them into the first Apple Macintosh in 1984?
Austrian economist Joseph Schumpeter once described the process of technological change in a free market as being comprised of three sequential parts: invention, innovation, and diffusion. Invention is the conceiving of a new concept, process or idea. Innovation is the stage where the ideas are commercialised, a model is created to make sense of the idea, and the economic requirements for implementation of the idea are arranged. Finally, diffusion generates the scale that the innovation needs to become impactful, often through adoption or imitation.
This model is an excellent way of articulating the core process of innovation, but the first part of this is often seen as the hero, to the detriment of the subsequent two equally critical stages. Many of us focus on the importance of new ideas, confuse invention with innovation, and underplay the significance of building a viable commercial model and scaling the resultant product or service. Ideas are nothing if you can’t execute them and make them work at scale. And that was a problem at Xerox.
PARC had proven themselves to be more than adept at invention. Yet Xerox the wider organisation proved to be inept at commercialising and scaling these ideas. There’s likely to be multiple reasons for this but it can’t have helped that PARC was set up in California, 3,000 miles from Xerox’s headquarters in Rochester New York. Whilst this remoteness afforded great freedom to the scientists and engineers at PARC, it also meant that there was a poor connection to the core of the business. PARC was relatively isolated, cut off from where the key decisions were made about which innovations to pursue.
This was not the only disconnect. The separation between R & D at PARC and the ability to turn their ideas into profitable products and business models was also a major factor. Xerox’s core business was photocopiers. Innovators at PARC referred to executives at headquarters as ‘toner heads’, due to their inability to see beyond their core product and service area. The PARC employees could envisage a world where copiers could become machines that could communicate information across vast networks. But this would require the creation of what the Chief Scientist and Director at PARC, John Seely Brown, called an ‘architecture of revenues’.
Yet their bosses failed to build this architecture and failed to capitalise on where technology was heading. Inventions like the GUI and the computer mouse were ahead of their time but it needed vision and timing to recognise when the market was ready for such radical ideas. Steve Jobs could see the commercial and user potential of the GUI and mouse in a way that Xerox executives never could.
When Xerox finally tried to enter the PC market with its Xerox Star product, it struggled to make it even vaguely commercial, to break out of its core product category, and to make the product compelling to users (IBM’s PC was a tenth of the price at the time). Vision and foresight can’t only exist in a company’s R & D team. It also needs to be demonstrated by the senior leadership. Research and innovation can’t be restricted to new technologies, it has to be focused on business models as well.
In many ways this is the big challenge with specialist innovation teams that sit within a large organisation. The innovation unit can incubate an idea, and perhaps even get it to the point where it’s a semi-viable product or service, but what happens when that idea gets handed over to a BAU unit to scale and run it? Those people have not been involved with the early gestation of the idea or been a part of the many ups and downs that typically characterise the earliest stages of an innovation. So they are much less emotionally invested in it, probably understand it a lot less, and are at risk of being disconnected from its true potential. The responsibilities and revenues for the new concept will very likely be additive to the ones that they have already, creating additional work and making it hard to give it the necessary focus it needs to grow.
The story of Xerox is the classic story of a business that rode the wave of a core product category, and couldn’t break out of it, failing to capitalise on its own inventions. It eventually lost its way, attempting to break into financial services and insurance – markets that were completely unrelated to its core competency of building hardware which distracted further from the networked revolution which was beginning to take hold. The company doubled down on innovation with photocopiers rather than digital technologies, missed out on the burgeoning personal computing market, was then further disrupted by cheap photocopier imports and hampered by a familiar short term focus on ROI and near term profits.
It’s a salutory innovation lesson to us all about just how critical it is to build viable business models around new ideas.
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Image: By Coolcaesar at the English-language Wikipedia, CC BY-SA 3.0
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