the innovation flywheel!
a framework for continuous business innovation
By the end of the 1800s, the first modern monopolies were born.
Back then, a monopoly that would last for decades was built on top of a new communication system: the telephone.
Today, I believe we're living in a similar time, but the new monopolies are getting built on top of a new computing platform: Generative AI!
The parallel here is that we've moved from AI research labs to consumer technologies quite fast.
So, there is a profound analogy between the telephone industry of that time and today's AI industry, and it's about the innovation loops... Going back to the story of the telephone, Alexander Graham Bell had secured the patent for the telephone; he built the first modern monopoly based on the phone communication system: AT&T. Within AT&T, a laboratory of innovation revolutionized many industries at once!
At the end of this newsletter, you will also find a series of case studies breaking down the Bell Labs innovation playbook!
How did he do that? What model of innovation did it follow? What were some of the key people that made this possible? Within AT&T, the laboratory of innovation was called Bell Labs, and it laid the foundation for modern innovation theory!
The interesting point about Bell Labs is this it followed a hybrid model of innovation.
In short, the lab did understand that innovation runs through loops that went along these lines:
Discovery (sub-divided into Basic Research and Applied Research) > Development > Manufacturing
Leading Bell Labs, there was a mythological figure, Mervin Kelly, who understood well that each loop phase required a different approach, competence, understanding, and timeline, and they were all critical!
In short, when looking at innovation, we usually have four main types of innovation:
Finding the sweet spot between basic and applied research is the first step to enable a scientific discovery to move into the realm of breakthrough innovation, thus changing an industry from the ground up via a paradigm shift!
The Bell Labs understood that well...
In fact, they learned how to balance basic research with applied research and how to use the strength of one or the other.
The discovery phase perhaps could be broken down in:
Basic research
Exploring new fields based primarily on theoretical understanding. Here scientists led the way, and they could look into the future, also of decades.
As an example, when Claude Shannon developed Information Theory at Bell Labs, he was way more interested in “the elegance of a problem than its applications.”
Creativity, individualism, and eccentricity played a key role at this stage.
And indeed, Bell Labs accepted that people like Claude Shannon had so many interests and they were so eccentric (at one point, Claude Shannon developed an obsessive passion for juggling), and yet Bell Labs was fine with that.
Applied research
Here, instead, by looking ahead 5-10 years, scientists/inventors needed to understand how the theory could be applied to the real world and what products could be prototyped and brought to market.
The inventor started to play a key role.
However, as many of the technologies developed by Bell Labs at the time required a massive amount of resources, the inventor needed to understand how to communicate the product/technology and how to lead a small team to develop that technology into a product.
Therefore, already at the late stage of applied research, the ability to build a small team was critical.
From there, innovation proceeded from the small team to larger and larger groups.
Indeed, as we move to the product development and manufacturing phase (or commercialization), it becomes much more about how to scale the technology.
From research to breakthrough! Thus, the number of people needed for the project grew exponentially.
In short, Bell Labs valued individual genius while “enabling the transfer of these ideas to groups or multitude of groups.” Kelly, leading the Bell Labs, understood this too well. Thus, he structured the lab around three main entities/group types:
Individual geniuses
They were left free to explore ideas way ahead in the future and beyond the possible applications, thus also coming up with new fields.
Those people, like Shannon, were very eccentric and solitary.
Sometimes producing ideas that could change the world, sometimes going around “juggling” many ideas at once without ever finding any that would have any application.
Small research teams
Which task was to prototype and primarily focus on applied research that could bring new technologies to market.
The informal structure of these teams and their individuality were very important.
In short, ideas and new ways to experiment came about more from arguments than formal procedures.
And large teams and departments
Primarily focused on product development and manufacturing at scale.
Formal procedures, and the ability to work with large teams, were extremely important.
Bell Labs’ hybrid model of innovation management leveraged all three.
And four kinds of people played a key role in the overall innovation loop!
The scientist: who looked far ahead, often without any practical application requirement. Theorizing came first.
The inventor: who combined technical/mechanical skill, ingenuity, and creativity to find applications based primarily on tinkering.
The engineer: who focused on how to make the technology viable at larger and larger scales. Thus combining a theoretical understanding of the field and the ability to tinker and coordinate small teams.
And the manager: which role primarily focused on coordinating larger and larger groups of people when technology was mature enough to be scaled to the masses. Here the ability to exchange subjectivity with formal procedures and the coordination of very large groups of people played a key role.
If you want to go deep into this topic I suggest you look into my interview about the full history of the Bell Labs!
Innovation Flywheel: Lessons From Bell Labs
Basic Research
Innovation Type: Exploration into new fields based on theoretical understanding without immediate practical application.
Example: Claude Shannon's development of Information Theory at Bell Labs.
Key Innovator: The Scientist
Traits: Highly creative, individualistic, and sometimes eccentric.
Role: To theorize and look far ahead, often without any immediate practical applications in mind.
Bell Labs Approach:
Recognized and valued the contributions of individual geniuses like Shannon.
Allowed these scientists the freedom to explore their diverse interests, accepting their eccentricities and unique approach to problem-solving.
Applied Research
Innovation Type: Translating theoretical understanding into real-world applications by developing prototypes and envisioning marketable products.
Example: Transitioning the theoretical aspects of Information Theory into tangible technologies that could benefit the masses in the future.
Key Innovator: The Inventor
Traits: Technical proficiency, creativity, and the ability to visualize practical applications.
Role: To tinker, prototype, and lead small teams in applied research endeavors.
Bell Labs Approach:
Fostered small research teams that emphasized prototyping and focused on bridging the gap between theory and application.
Recognized the importance of team dynamics and the informal structure, where ideas often emerged from discussions and disagreements.
Product Development
Innovation Type: Transforming prototypes and technologies into viable products ready for the market.
Example: Taking a technology developed from Information Theory and creating a product, like a communication device, that can be mass-produced.
Key Innovator: The Engineer
Traits: A mix of theoretical knowledge, practical tinkering skills, and team coordination.
Role: To ensure the technology is viable for larger scales and to oversee the transition from prototype to product.
Bell Labs Approach:
Utilized larger teams and departments dedicated to product development.
Emphasized formal procedures and streamlined processes to ensure efficient production.
Commercialization/Manufacturing
Innovation Type: Scaling the technology to mass production and ensuring it reaches the end consumer.
Example: Mass-producing the communication devices developed from Information Theory and ensuring they are available in the market.
Key Innovator: The Manager
Traits: Organizational skills, ability to implement formal procedures, and coordination of large groups.
Role: Oversee the scaling of technology to the masses and manage large teams to ensure efficient production and distribution.
Bell Labs Approach:
Leveraged large departments focused on manufacturing at scale.
Prioritized formal procedures and efficient coordination to ensure technology reaches the masses.
Recap: In This Issue!
The parallel between the telephone industry in the late 1800s and today's AI industry is that both have seen the rise of monopolies built on new communication/computing systems. This path is not given, and it's critical to enable AI to evolve in the direction of a distributed market to make it successful!
Alexander Graham Bell's AT&T established the first modern monopoly based on the telephone communication system. Within AT&T, Bell Labs emerged as an innovation laboratory, revolutionizing multiple industries.
Bell Labs followed a hybrid model of innovation consisting of discovery (basic research and applied research), development, and manufacturing.
Mervin Kelly, a key figure at Bell Labs, recognized the importance of different approaches, competencies, understanding, and timelines in each phase of the innovation loop. Four main types of innovation emerged: basic research, applied research, product development, and manufacturing.
Balancing basic research with applied research was crucial for enabling scientific discoveries to lead to breakthrough innovations and paradigm shifts.
Basic research involved theoretical exploration by scientists driven by curiosity and the pursuit of elegance in problem-solving.
Applied research focused on understanding how theoretical discoveries could be applied to real-world applications within 5-10 years.
Inventors played a key role in the applied research phase, understanding how to communicate and lead a team to develop technologies into marketable products.
The ability to build and lead small teams became critical as the innovation progressed from applied research to product development and manufacturing.
Bell Labs valued individual genius but also emphasized the transfer of ideas to larger groups. Bell Labs' structure encompassed individual geniuses, small research teams, and large teams and departments to cover the various stages of innovation.
Four types of people were crucial in the innovation loop: scientists (theorists), inventors (creative problem-solvers), engineers (scaling and coordination), and managers (coordinating large groups).
Bell Labs' hybrid model of innovation management leveraged the strengths and contributions of all these key individuals and teams. The ultimate goal was to move from research to breakthrough, involving a growing number of people and scaling technologies for mass adoption.
To know more about innovation loops in the current business landscape, see the resources below:
Ciao!
With ♥️ Gennaro, FourWeekMBA
