Notes on Innovation: Looking at Bell Labs and Stella's Farm

Lesson 1: Change is inevitable.

Lesson 2: Change requires new thinking.

Lesson 3: An idea is just the beginning. Meaning that innovation is a long process and ideas are part of a larger network that I will delineate throughout this post, which is essentially a brief history of innovation, with a particular focus on  The Idea Factory, by John Gertner, a history of Bell Labs, and some notes on approaches to innovation in current organizations as learned in How Stella Saved the Farm by Chris Trimball and Vijay Govindarajan. Bell Labs operated in a different climate than we do now, but the lessons in innovation we learn from Bell Labs are still relevant.

What is innovation? The answer for Bell Labs was “better, cheaper or both.”

We shouldn’t underestimate the importance of Bell Labs as a lesson for innovation for companies in our current environment, despite the fact that the world has changed dramatically since Bell Labs’ heyday (1940s-70s). The engineers at Bell Labs invented the future in which we now live. Just about all of the tech world (the Apples, the Googles, the Microsofts) would not be possible without the work done at Bell Labs.

The Young Turks—the gifted group of innovators at Bell Labs—achieved this innovation by bridging a gap between the best science of the academy and the important applications that a modern society needed. In essence, this is what great tech companies do now.  

Bell Labs had a very simple formula based on 4 principles: 1) Technically competent management; 2) Researchers didn’t have to raise funds; 3) Research on one topic or system could be and was supported for years (e.g., cellular telephony and underseas cables); 4) Research could be terminated without damning the researchers. Unfortunately, companies nowadays don’t have the luxury to be as foresighted as Bell Labs and think in the long term. Current research, too often, is grounded in the short term, out of necessity and lack of prolonged funding.

The question then becomes: Where do you look for innovation?

Bell Labs operated under the premise that there are plenty of good ideas; what they were looking for was good problems.

The Bell Labs Campus

So, how do you tackle problems?

Very scientifically.

There are several laws that will help us in our quest for tackling problems through innovation:

Law 1- Put learning first and profits second. Learning isn’t just about reading and investigating happenstance. Learning has to be done through disciplined experimentation. Be scientific. Start by stating a hypothesis. Predict what will happen. Measure the results. Assess the lessons learned by comparing predictions to outcomes.

Law 2- Inside a big experiment, you will find many little ones. You have to gather evidence to validate each one.

Law 3- An innovation leader’s job is to execute a disciplined experiment.

To execute a disciplined experiment, an innovation leader’s plan should start by stating a clear hypothesis. Then, clearly identify the most critical unknowns (of which there should be many; if not, start over). Plan, analyze results, decipher lessons, and then tweak a bit. Measure as many results as possible. But then focus on one metric that becomes your obsession, the one that you think most closely relates to your bottom line or whatever it is you’re trying to achieve (there’s still the element of learning first, profits second). In 3 months or so, reevaluate. Is this metric still the one most closely associated with your objective?

Everybody must understand the assumptions, lest you want to feel the pangs of being thought of as the mad scientist pissing money down the drain. One of the biggest obstacles to innovation is what has become known as the Innovator’s dilemma: It’s easier to achieve incremental improvements and meet quarterly earnings goals, while it’s much more difficult to fund research on the more interesting ideas that may destroy your business if their product becomes obsolete.

The other problem we have in tackling problems with innovation is a terrible habit of shoving new ideas into old paradigms. Take, for example, Bell Labs’ failure with the picture phone in the 1960s. We can all recognize the picture phone today in our Skype or FaceTime, but what’s crazy is that the concept and the technology for a picture phone existed in the 70s. And what’s crazier is that the PicturePhone as a business failed!

The picture phone failed because of an inability to consider Metcalfe’s Law, which states: The larger the network, the higher the value it has for its users. Marketing studies told Bell Labs that the picture phone would be wildly successful. Could you imagine being a respondent to their survey? It’s like a telephone, but you can see your loved one at the other end of the line. Yes! Of course, I’m interested!

Here's the Picture Phone. Pretty cool, huh?

Marketing studies only tell you something about the demand for products that already exist. Later, Bell Labs measured a tremendous lack of enthusiasm for mobile telephony when it was being researched in the early 1970s. People couldn’t quite imagine what mobile telephony would look like. The difference between this lack of enthusiasm for mobile telephony and an outpouring of enthusiasm for picture phones prior to the launch of the PicturePhone has to do with people not knowing what Mobile telephony would look like. The difference also resides in how Bell Labs tried to fit their ideas into the paradigm in which they existed.

You have to create a new paradigm.

2 great obstacles that many organizations face in their quest for innovation, which is in essence their quest for existence, are: 1) the great divide between sales and engineering (and I’m lumping everybody who might fit into these two big departments, marketing for the former, for example, and project managers for the latter); and 2) meetings and decisions are reactive rather than focusing on what is important. In other words, meetings become a place where everybody shares what they are doing and where they are at rather than a space in which colleagues can gather and work together on a problem.

One of my takeaways from reading about Bell Labs was the tremendous importance of serendipitous encounters with people outside a researcher’s area of expertise. The Bell Labs campus was designed for these serendipitous encounters to take place. People were forced to get out of their silos and exchange ideas, even ideas totally unrelated to the actual “business;” these non-germane ideas were many times the ideas that started off great world-changing projects. Having people totally unrelated to your Department observe your Department’s processes then becomes profoundly enlightening because these people observe the company’s interactions with customers and the company’s products in different ways. Their insights can be crucial, which explains the success behind Kaizen workshops at organizations like Toyota and cross-functional “brown bag” lunches in which employees can learn about another aspect of the company and what other people are working on.      

The other element of Bell Labs, which was without a doubt the most important element for sparking innovation, was people. Starting with Mervin Kelly, president during the glory years, Bell Labs had the ultimate “manager.” Kelly’s sense of mission and his ability to institutionalize the process of innovation so effectively define the processes of innovation at Bell Labs. Kelly believed that an “institute of creative technology” needed a critical mass of talented scientists — whom he housed in a single building, once again emphasizing the importance of serendipitous encounters for ideas— and he gave his researchers the time to pursue their own investigations “sometimes without concrete goals, for years on end.”

Then we have Claude Shannon, who is the visionary. In many ways, Shannon’s visions were more important and have greater effect on our lives than those of Steve Jobs, the visionary we most celebrate nowadays. Shannon was the informationist, the theorist behind binary code, and the one to envision an information network that would wrap the world like “the biological systems of a man’s brain and nervous system.” He was also behind the digital computer and digital circuit design. Clearly, there would be no Google without Shannon.

Somewhere between Shannon (the genius) and Kelly (the manager) we have John R. Pierce, the Instigator, whose job was to wrest excellence out of places where it might fall short. He identified promising lines of research by making connections between staff members. Having a Pierce, an Instigator, is precisely what can help solve the 2 obstacles to organizations trying to achieve innovation that I identified above. A Pierce can break down silos, though breaking down institutions is difficult for a single person, and a Pierce can make meetings meaningful by knowing how to make combinations of people to make great projects.

Bell Labs Corridor

An innovative company like W.L. Gore, makers of Gore-Tex and probably the most famously “flat” organization, exemplifies taking an Instigator’s role even further by creating a lattice with self-managed teams. Bill Gore conceived of the company as a lattice connecting every individual in the organization to each other, an informal network of relationships that sparks cross-functional collaboration and allows information to flow freely. Because not only do we need to have serendipitous encounters to spark creativity, information should flow freely. Steven Johnson, author of Where Good Ideas Come From, notes just how important coffee houses, where ideas are exchanged, are to innovation in this video. And in his description, we learn that an idea isn’t just a single Eureka moment but a network, once again emphasizing that an idea doesn’t stand alone, but only becomes meaningful when it solves a problem and is inserted into a new paradigm in which it fits.

When a company decides to be innovative, it typically assigns one division under one leader to just make innovation “happen,” which is a course for disaster. It’s important that a dedicated team work on activities that are outside the specialized capabilities of the current organization and that this team is built up as if it were an entirely different company and measured by different standards. The leader of this team—because he or she is leading an experiment that is bound to create conflicts with the existing organization—should be measured not necessarily on profits (because learning should be more important with this innovative new team) but on how well he or she executes a disciplined experiment.

At the end of the day, innovation is like a box of Legos. Lego means something like “play well” in Danish, while in Latin it means “I study” or “I put together.” Serendipitous encounters, instigators, free-flowing information, and scientific and disciplined experimentation are what it takes to innovate. In essence, playing well and putting together. Innovation is about making things cheaper and better. It also requires creativity. When I was a kid, I used to think that creatives are the types that when they speak rainbows and unicorns came out of their mouths. Creativity is really about asking the tiny little questions that can change a process just enough to make it better or cheaper. Sometimes with big results. Creativity also requires structure to which everybody can relate. A story structure is one of the most universal concepts that exists. A good marketer is a good storyteller. And a good storyteller works using a structure.With a good structure, a story line develops. When a story line develops, people can see themselves in it. Great companies make a story in which we can see ourselves and want to participate.