Innovation Starts…OR Ends with Mindset

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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.