Innovation Theory Through The History of Bell Labs

The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.

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The rise of Bell Labs

The history of Bell Labs, and how its mother company AT&T’s corporate structure evolved over the year is important to understand how innovation looked like by the end of the 1800s, until the 1950-60s. It’s important to remark that each time has its own features. And the sort of context that developed in these decades also made possible the development of Bell Labs.

Thus, innovation can’t have a fixed structure, but it will depend on the context developed from time to time. For the sake of understanding that, let’s look at some of the key highlights from the interview with Jon Gertner on the History of Bell Labs.

The first modern monopoly

By the end of the 1800s, AT&T was the first modern monopoly. Meant as a monopoly built on top of a mass communication system, which was the phone business. Not differently to how today we see big tech players like Amazon, Apple, or Google. At the time, AT&T was looked at as a litigious monopoly.

At its rein, the ambitious Theodore Vail advocated for the so-called “one policy, one system, universal service.”

The main narrative was that the phone business borrowed itself as a natural monopoly.

In short, due to the high costs of running such a business at scale, and the fact that to make the phone available to the masses, and to rural areas (where it made much fewer sense economically), it needed to be structured as a monopoly.

Thus, from the higher margins that the monopoly enjoyed thanks to lower competition, it could reinvest them to make the service universally accessible, also in areas where it needed to be subsidized (like rural areas).

Therefore, from being perceived as a litigious monopoly. Eventually, the narrative around AT&T shifted.

Changed perception

The structure of the phone business, the high costs of set-up, maintenance, and expansion, convinced the public to make it possible for AT&T to gain a monopolistic structure, where the company could pour an unlimited number of financial resources toward the scaling of the phone service across the US.

We were in a time (the early 1900s) where connecting New York to San Francisco, seemed unthinkable. And therefore, the fact that AT&T was pouring resources to massively grow the phone network across the US also led the way toward official recognition of AT&T as a monopoly.

The antitrust shield

With the Willis-Graham Act of 1921, the US Congress formally exempted the telephone business from federal antitrust laws. This was a key moment. However, Bell Telephone Laboratories was spun off from AT&T in 1924, and as we’ll see scientific research got the center stage.

This passage is critical, as it officially gave AT&T the freedom as a monopolist to plan ahead of not one or two years, but of decades. Thus, enabling its investments to go way beyond the phone business, and actually enable innovations that were decades ahead of its time!

Manufacturing innovation through a hybrid model

The interesting point about Bell Labs is this followed a hybrid model.

In short, the lab did understand that innovation runs through loops that went along these lines:

Discovery (sub-divided in Basic Research and Applied Research) > Development > Manufacturing

Kelly, leading the Bell Labs understood well that each phase of the loop required a different approach, competence, understanding, and also timeline.

The discovery phase perhaps could be broken down in:

Basic research: the exploration of the 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.” At this stage, creativity, individualism, and eccentricity did play a key role. 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 a obsessive passion for juggling) and yet Bell Labs was fine with that.
Applied research: here instead, by looking ahead of 5-10 years scientists/inventors needed to understand how of 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 able 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, it became much more about how to scale the technology. 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.”

If you think about the most successful field that Bell Las revolutionized, solid-state research, its applications required the effort of many people to succeed.

Kelly, leading the Bell Labs understood this too well. Thus, he structured the lab around three main entities:

Individual geniuses: who were left free to explore ideas way ahead in the future and beyond the possible applications, thus also coming up with whole 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 a new technology to market. Also, here the informal structure of these teams, and the individuality were very important. In short, here 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. Here formal procedures, 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 applications 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 a 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.

From tinkering to scientific research

The Bell Labs of the early years were influenced a lot by Thomas Edison.

Kelly himself sought the ability of Edison to invent new things as a key element.

Yet during Edison times’ theory was scorned and invention relied on tinkerers. In fact, Edison was himself an inventor and in his Menlo Park lab knew how to leverage on scientists when needed.

Instead, Bell Labs incentivized research, and over time transformed scientists into heroes.

However, this process took decades, and scientific research really took the center stage by the 1940s-50s, when eventually people like Shannon developed fields like Information Theory (“A Mathematical Theory of Communication” was first published on the Bell System Technical Journal in 1948).

Indeed, at Bell Labs, a group of young mavericks called the Young Turks (comprising people like Kelly, Pierce, Shannon, Shockley, and others) went ahead to revolutionize various fields and open the way to modern technologies like PC and the Internet.

The hidden role of serendipity

While managers like Kelly emphasized the effectiveness of Bell Labs to innovate predictably. In reality, many innovations came also as a result of serendipity/random tinkering.

The epitome of that was the “zone refining” process which helped Bell Labs manufacture a purer form of semiconductors as it removed impurities from the germanium. And this was the result of a nap a metallurgist called Pfan took on the job as the breakthrough idea came to him!

Open and closed research (war and post-war research approaches)

It’s also worth mentioning that the approach of Bell Labs to innovation slightly changed as we go through the world war.

In fact, scientific research that until then had been an open field, suddenly becomes secretive, as most of the technologies that scientists were working on were military projects, that were meant to be kept secret.

As Jon Gertner points out in the book, Idea Factory: “Radar won the war whereas atomic bomb merely ended it.”

As the war ends up, and AT&T’s (this Bell Labs) role to the government wanes, the research opens up again. Eventually, a turning point is the 1956 antitrust case settlement for AT&T which also calls for the company not to enter the computer or consumer electronics market.

This decision would play a key role in the long run, as many technologies patented by AT&T would eventually be used to open up whole new industries.

Two of these discoveries, that led to the apex of Bell Labs and at the same, at its demise were: information theory and semiconductors.

When Claude Shannon conceived Information Theory, it built the foundation for computers to communicate with each other, later on, thus prompting the whole Internet industry, which still today plays a key role.

Yet, while information theory would play a pivotal role in the years to come, there was another field which applications were prompt to create a whole new industry.

The birth of Silicon Valley

The father of the semiconductor was one of the Young Turks: William Shockley.

As Jon Gertner explained in our interview:

“Bill Shockley was handpicked by this fellow Mervin Kelly to help lead the transistor or the solid-state team. Together with Shockley, Walter Brattain, and John Bardeen, two physicists came up with the invention in December 1947. That was the first transistor.

It’s important to note the first transistor wasn’t actually that useful. It was very hard to make, and it had certain limitations as a technology. Bill Shockley came up with other ideas for transistors junction transistors as they were called. Eventually, they became much more crucial to the electronics industry as well.”

As Jon further highlighted:

“What I think changed things as much or more is that eventually Bill Shockley left Bell Labs and went out to the west coast to California. He was really one of the first-ever to say, ‘I’m going to become an entrepreneur.’ You can look at Hewlett-Packard and HP before him, but it was a little different.

Shockley left the east coast, which in the U.S., is almost like a symbolic transition. Leaving the east coast to go to the west as an entrepreneur, as this world-renowned physicist who had won the Nobel Prize to start a company, the first transistor company. He started it on some land at Stanford University that was developing as an incubator.

He created something called Shockley Semiconductor. For those who don’t know this history, it’s the very history of technology and entrepreneurship. Shockley was a very difficult man with all sorts of strange ideas about race and intelligence. Objectionable ideas really, but he was actually really good at hiring people.

His first company really hired people who became the entrepreneurs of the transistor age or the integrated circuit age. These were people he hired for instance, like Moore, who created Moore’s law that created the companies like Intel, that created venture capital firms, like Kleiner Perkins.

That really seeded the companies that created the information age. Now, there was another company, Texas Instruments that grew out of the transistor work down with Kilby. There were other companies, but all of it, I think if you were drawing a family tree, for instance of how the transistor and how the information age began, it really begin at Bell Labs.

It would branch off from there into Shockley Semiconductor and Texas Instruments, and eventually Fairchild Semiconductor, which grew out of Shockley’s company, and then Intel.”

Key Highlights of the Innovation Loop and Bell Labs:

Origin and Significance of Bell Labs: The innovation loop draws inspiration from Bell Labs, a pioneering research institution that fueled innovation throughout the 20th century. Bell Labs demonstrated the power of a hybrid innovation management model by integrating science, invention, engineering, and large-scale manufacturing.
Evolution of AT&T: AT&T, the parent company of Bell Labs, evolved into a modern monopoly by the late 1800s, akin to today’s big tech players. The company’s monopolistic structure aimed to provide universal phone service through the “one policy, one system, universal service” approach.
Shifting Perceptions: The perception of AT&T shifted over time, from being viewed as a litigious monopoly to a company committed to providing accessible phone service across the US, even in rural areas.
Monopoly and Antitrust Exemption: The Willis-Graham Act of 1921 exempted the telephone business from federal antitrust laws, granting AT&T the freedom to plan ahead for decades. This allowed significant investments beyond the phone business and enabled innovations far ahead of their time.
Hybrid Model of Innovation: Bell Labs adopted a hybrid innovation model consisting of three main entities: individual geniuses, small research teams, and large teams/departments. Each phase of the innovation loop required different approaches, skills, and timelines.
Key Roles in Innovation Loop:
- Scientist: Explored new fields with theoretical understanding, often decades ahead.
- Inventor: Combined technical skill and creativity to find applications through tinkering.
- Engineer: Focused on making technology viable at larger scales, coordinating small teams.
- Manager: Coordinated large groups, scaled technologies, and exchanged subjectivity for formal procedures.
Transition to Scientific Research: Bell Labs transitioned from Edison’s era of tinkering to valuing scientific research. By the 1940s-50s, scientific research took center stage, resulting in breakthroughs like Information Theory.
Serendipity in Innovation: While Bell Labs aimed for predictable innovation, many breakthroughs also resulted from serendipity and random tinkering. The “zone refining” process for semiconductor manufacturing is an example of such unexpected innovation.
Open and Closed Research Approaches: During World War II, Bell Labs’ research became secretive due to military projects. After the war, research opened up again, leading to pivotal moments such as the 1956 antitrust case settlement.
Birth of Silicon Valley: The semiconductor field was pioneered by Bell Labs’ Young Turks, including William Shockley. Shockley’s entrepreneurial venture in California paved the way for Silicon Valley, nurturing the growth of the information age through companies like Intel.