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Thomas Edison and the Theory and Practice of Innovation

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Thomas Edison and the Theory and Practice of Innovation Thomas Edison and the Theory and Practice of Innovation Andre Millard • Universityof Alabama at Birmingham In December1990 Financial Worm took a poll of the BusinessHistory Conferenceto determinethe mostimportant individuals and organizationsin the businessworld in the past hundredyears. The poll set out to find the greatestbusiness leaders of the twentieth century,the most important companies,and the biggestbusiness flops. Apart from the questionabout the mostimportant invention of the twentiethcentury, it is doubtfulif Thomas Edison'sname will be mentionedin the responsesto the poll, for here is a man associatedmore with inventionthan with managementand a historical figurethat belongsmore in the nineteenthcentury than in the twentieth.Yet as an innovatorwho setout to manufactureand market his inventions,Edison set in motion a strategythat continuesto dominateAmerican business. In a career that bridged the nineteenthand twentiethcenturies, Edison was an importantpioneer in the innovativebusiness organizations and strategies that are now claimedby someof America'smost successfulcompanies. Edison deservesto be recognizedas an importantbusiness leader of the twentieth century. The Reluctant Industrialist In addition to a nominationfor creating one of the important companiesof the twentiethcentury, Edison also deserves a nominationas the architectof someof America'sgreatest business failures. His reputationas a businessmanhas never been very great. His friendHenry Ford summedit up when he said that Edison was the world's greatestinventor and worst businessman[6]. The historyof the electricutility industry serves to provethis point and to supportthe notion that inventorsand engineersdo not make goodmanagers. After inventingthe incandescent lamp and building the central stationsystem to bringelectric light to citydwellers, Thomas Edison formed manycompanies that madethe equipmentand providedthe service.When ]I wishto thank the National Park Service for access tothe Edison National Site, West Orange, New Jersey,where the Edisonarchives are held.All Edisonquotations come from documents in this archive and can be referencedby consultingmy book, Edisonand the Businessof Innovation(Baltimore, 1990). BUSINESS AND ECONOMIC HISTORY, SecondSeries, Volume Twenty, 1991. Copyright(c) 1991 by the Businessltistory Conference. ISSN 0849-6825. 191 192 thesecompanies were amalgamatedinto General Electric in 1892the great inventorwas given only a nominalrole as a member of the board. The newspapersat that time and later historianshave agreedthat Edison was "frozenout" of the industrythat he had created,a victimof the manipulations of big businessand his ownpoor judgement [3]. Edison'sfollow up to the great successof electric lightingwas an unmitigateddisaster. His planto magneticallyextract iron from low grade ore wentagainst the conventionalwisdom of the miningindustry. Edison built a huge mill in the mountainsof New Jerseyand pouredaway the profitsof electriclighting trying to make it work. The total failure of this project broughthim closeto bankruptcy.It is no wonderthat managementexperts, suchas Peter Drucker,tend to depictEdison as a disastrouslybad manager who ruined the companiesformed to develophis inventions[4]. Edison himselfattempted to downplayhis role as a businessmanby stressingthe fact that he was an inventorwho preferredto stayin his laboratory.A reluctant industrialist,he claimedthat he was forced into financinginventions and buildingfactories because entrepreneurs were too timid to do the job themselves. This story,like many othersconcocted by Edison,was completely untrue.It waspart of his successfulcreation of an Edisonmyth and a ploy to keep him out of the litigationthat invariablyaccompanied his business activities.Edison's theory of innovationwas based on the inventorplaying the centralrole in manufactureand marketing.He claimedthat any moneyhe madewas from manufacturingthe inventionand not sellingthe patent.He described himself as an inventor or as a manufacturer; he saw the two functionsas overlapping.He did not use the term innovationto coverthe activitiesof settingup a commercialenterprise upon an idea, yet this was clearlyin hismind when he claimedthat comingup with ideasfor inventions was easybut it was "the long laborioustrouble of workingthem out and producingapparatus which is commercial"that requiredthe hardwork. Edisonwas certainly not contentto be just an inventor,a personwho turns ideasinto patents.He believedthat a patentwas hardlyworth the troubleof inventingsomething. He knewfrom experience that selling patents to businessmenoften left the inventorshortchanged. More oftenthan not the returns from a new idea went to the financier or manufacturer,while the inventorstruggled to protecthis patent in the courtsand obtain his shareof theprofits. A patentalone was not enough, nor was an invention.The original ideahad to be developedinto something more tangible than a patent;it had to be transformed,or "perfected"into a workingmodel or a final product-- somethinga businessmancould see and touch rather than imagine. This was essentialto obtainœmancial support. In Edison'swords, the "moneypeople" had to seemoney in an inventionbefore they would invest in it. "Perfecting" an inventionalso involved finding and remedying the "bugs"--thedefects and designproblems--that inevitably cropped up in the developmentof an idea into a workingmodel or process.This stageof innovationended when the inventionwas translatedinto a factory-readyprototype. Its value was now muchgreater than a patent.The finalstep involved "pioneering" a technology by puttingit into productionand provingits commercialfeasibility. This 193 involvedfinancing a manufacturingoperation and administeringit until it couldbe soldto entrepreneurs. Innovationcovers what Edison would have called inventing, perfecting, andpioneering a newtechnology. He hadplenty of experienceof innovation by the time he setup his "inventionfactory" in Menlo Park,New Jerseyin 1876.This prototypeof the modernresearch and developmentorganization wasdesigned to producea streamof newproducts, and the inventionof the phonograph,high resistanceincandescent lamp, and manyimprovements in telegraphyproved that innovationcould be regnlarizedand placedin the format of massproduction. It wasat Menlo Park that Edisondemonstrated that he was not contentto merely developnew products,for he was determinedto controlall stagesof innovation,especially the manufacturing stagewhere he couldemploy the resourcesof his laboratoryto continually reducethe costof production.He beganto manufactureincandescent bulbs at Menlo Park and to think seriouslyabout settingup factoriesto mass producehis invention[5]. The largefactory that he setup in Harrison,New Jerseymarked an important point in his businesscareer, for it was at Harrison that he discoveredthe major article of faith of American manufacturingin the nineteenthcentury: the costof makinga productcould be successivelylowered as the manufacturermoved along the learningcurve of massproduction technology, and at eachcost reduction more customers were attractedto purchasethe product.The inventionfactory was to be used to progressivelylower the costof production.The miraclesof costreduction that had beenachieved at the Lamp Workscould surely be appliedto other products. Edisonconsequently formulated a grandstrategy for a newlaboratory, envisaginga large industrialundertaking that wouldmanufacture the many new productsdevised in the laboratory.In 1886he beganits constructionat West Orange,New Jersey.His closeassociate Charles Batchelor was told of this schemewhile the laboratorywas beingbuilt. He wrote in his diary: "Edison'sidea now for the futureis to get up processesfor manufactureand start factories...assoon as the new laboratory is finished this will be commencedin earnest"[7]. The Manufacturing Strategy Edison'splan was not to create anotherlarge scaleenterprise like electriclighting, but a focusedmanufacturing operation to bring consumer durablesto a massmarket. With the enormouscosts of introducingelectricity still fresh in his mind, Edison wanted to avoid "cumbersomeinventions like the electriclight" and concentrate instead on small products with a highprofit potentialand low capitalrequirement; he plannedto supplysmall items of commerce--"usefulthings that everyman, woman and childwants." As an industrialistin the 1870sand 1880s,Edison knew that he could usethe telegraphand railroad to reacha nationalmarket. Perhaps influenced by the successof the sewingmachine, he sawan importantnew marketfor consumergoods opening up at that time. Americancities were growingat a furiouspace. Between 1880 and 1900the urbanpopulation of the United 194 Statesmoved from 28% to 40% of the total.With the greatboom in railroad constructionover, cities were becomingthe most important market for manufacturedgoods [2]. After consideringa wide range of potentialproducts, Edison decidedto concentrateon makingoffice machinery,including the electricfan and the phonograph.The latter couldbe turned into a dictating machineand Edison believed that its recordedcylinder--the phonogram--was goingto replacethe letter and the memo in Americanbusiness. The constructionof the EdisonPhonograph Works in 1888completed the plan for his West Orange operation--alarge manufacturingfacility adjoininga laboratorycomplex, and all under the controlof one man. In controllingmanufacture, and ultimatelythe supplyof raw materials,Edison was coveringground that normally is reservedfor the large, integrated
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