Some ideas need a second consideration. Jon Gertner’s book, The Idea Factory: Bell Labs and the Great Age of American Innovation, is one of those reads that takes a culturally-presumed evil and flips our assumptions on their head: maybe a monopoly can be a good thing, after all. Good for everyone, not just a select few.
The book presents the case of Bell Labs and challenges us to rethink monopolies—and all of our presumptions about business and life.
Summary of Idea Factory
In its prime, Bell Laboratories was the premier beacon of unparalleled innovation, producing a wide array of advances almost single-handedly propelling humanity into the age of technology. Founded in 1925, it grew to consist of swaths of scientists, mathematicians, and engineers in pioneering fields that were just as diverse. While it was funded by AT&T, it remained functionally separate with the nebulous goal of improving communication.
There was never a shortage of problems, nor brilliant people with solutions. Given plenty of slack, scientists were free to think, experiment and collaborate—unconstrained by timelines, money, or management. Having engineers on staff allowed an idea to be conceived, prototyped and tested, many times within the same day. This produced innovation that was sparse, but decades ahead of its time.
Unconstrained by antitrust laws, AT&T and Bell were free solve problems through entire verticals, reinjecting its sizable profits into R&D.
Through its tenure, Bell Labs was responsible for technologies like the transistor, laser cooling, camera sensors (CCD chips), Unix, C, C++, cellular towers, fax, audio-synced motion picture, solar-power cells, integrated circuits and zero-down time transatlantic fiber-optic cables.
Among other things, the company was responsible for pioneering radio astronomy, information theory, materials science, Six-Sigma and encryption.
Bell Labs thought of innovation as leaps, not steps—out-of-the-box thinking that produces a result that’s either 10x better, faster or cheaper. Incremental improvement was NOT innovation.
Their formula still works: the right people working on compelling problems produces the highest quality results. To breed innovation, the goal is to reduce the managerial oversight—instead creating simple, long-term goals, hiring people aligned with them, and providing the resources needed to succeed.
Some Ideas Deserve a Second Thought
The achievements of Bell Labs would have been untenable had AT&T not been granted a federally endorsed monopoly. AT&T smashed the misconception that a monopoly stifles innovation.
It’s commonly cited that monopolies cause companies to grow sluggish. This may be true for most segments of the economy, but AT&T was properly motivated to connect the world at impossible rates, facilitating exponential increases in the density of data. A feat like this would be impossible with incremental innovation. This type of innovation required huge cash investments that would normally have been allocated as profits. Such profits would have been lucrative for competition, were it accessible.
Seeing the progress, the government decided a highly regulated monopoly was—in this case—the proper way to manage AT&T. They allowed its existence, but the leash was kept close. AT&T agreed not cross certain lines in exchange for this courtesy.
The goal of regulation was always to protect consumers, not to establish barriers to entry. The opposite seems true today.
Unfortunately for Bell, popular consensus shifted and in the 1980s the Federal government moved to activate anti-trust laws, breaking up AT&T into several smaller companies—and with it went the excess cash flow. Breaking up AT&T led to the division of Bell Labs and its island of innovation.
When properly managed and regulated, monopolies can be quite profitable for the organizations, and for society at large. They tend to occur in unstable equilibrium, in a fragile balance of self-severance and that of the collective good.
The world was lucky to be an audience to Bell’s existence.
The challenge for us today is to change the thinking about monopolies as self-serving and unproductive. Idea Factory persuades the reader of the merits and the greater good that monopolies can potentially invoke.
Don’t dismiss an idea without reevaluating your own thinking. At the end of the day, most knowledge is given to you, not discovered. You’ll learn more when you consider the counterargument to general wisdom.
Looking for more must-read books? Every business owner should have a marked-up copy of Traction on their shelf.