As Xerox PARC Turns Forty-Seven, The Lesson Learned Is That Business Models Matter

Saturday, July 1, 2017

Source: Forbes

On the July 1, 1970, the Xerox Palo Alto Research Centre opened its doors. Commonly known as Xerox PARC, the research centre was set up as a division of Xerox Corporation and was given the mandate to invent the technologies of the future. At Xerox PARC great scientists, engineers and programmers were assembled and they set about the task of inventing the future of computing. They invented technologies that are so widely successful, we take them for granted today. The Ethernet, a prototype of the modern PC, the graphical user interface, a commercial version of the mouse, page description languages and laser printers were all invented at PARC.

Innovation Without Profit

During its early years,  Xerox was not able to capitalize on the market potential of the research and development that was getting done at PARC. The benefit of that work accrued to other companies. For example, Apple launched the Macintosh Computer in 1984. This personal computer featured a graphical user interface (GUI) and a mouse, which for that era, was a revolutionary new innovation.

But Apple had not invented the GUI or the mouse. This brilliant work had been done by the scientists at Xerox PARC. So why was it Apple and not Xerox that was launching a product in 1984 and benefiting from PARC’s great inventions? The answer to that question lies in the fact that R&D and invention are not enough. In order to innovate successfully, companies need frameworks, tools and processes that can help them take their inventions from ideas to commercial success.

Innovation Beyond R&D

It was in December 1979, when Steve Jobs made his first visit to Xerox PARC. As part of a deal that allowed Xerox to buy one hundred thousand shares of Apple, Jobs was given permission to see the inventions that PARC engineers were working on. Jobs was blown away by what he saw at PARC. The commercial value of the technology was clear to him. So while the Xerox’s own personal computer the Alto was a commercial flop, Apple’s Macintosh became a legendary success that kickstarted a revolution.

Xerox’s failure to commercialize its own inventions was partly due to the disconnect between those ideas and its core business making copiers. Executives within the main business were disparagingly referred to as “toner heads” because of their failure to see the commercial value in new inventions that were not directly related to photocopying or printing. As such, even as their team made great technologies, Xerox failed to combine this innovation with sustainably profitable business models.

To succeed at innovation, companies need to design their internal processes to engage in three key activities:

  • Facilitating the serendipity that creates sparks of creativity among employees.
  • Capturing and testing the outputs of this creative process.
  • Transforming creative ideas into commercially successful products.

Interestingly, in the case of the Apple Macintosh, these key activities appear to have happened in three different organizations. According to Malcolm Gladwell, “The mouse was conceived by the computer scientist Douglas Engelbart, developed by Xerox PARC, and made marketable by Apple.” The problem with Xerox is that it failed at executing on the final step of this process (i.e. commercialization), which is the step at which Apple succeeded.

John Seely Brown, former Chief Scientist and Director at Xerox PARC, highlighted this point when he stated that, “ Not everything we start ends up fitting with our business later on. Many of the ideas we work on here involve a paradigm shift in order to deliver value. So sometimes we must work particularly hard to find the ‘architecture of revenues. At Xerox there has been a growing appreciation for the struggle to create a value proposition [from] our research output, and for the fact that this struggle is as valuable as inventing the technology itself.”

This notion of finding the ‘architecture of revenues’ lies at the heart of what turns R&D labs from hotbeds of creativity and invention, into hubs of innovation. Business models are the connector between new technologies and commercial success. Business models provide the platform on which inventions benefit both customers and companies; customers by delivering value and companies by delivering profit. This combination gives our new technologies the sustainable traction they need to grow.

R&D The Business Model

Transformational innovation is about imagining the future. The products and business models are often very different from the company's current portfolio. As such, management will not have seen any of the projected success play out in reality before. Since they are making decisions without actual evidence of success, it is hard for them to judge the potential of the transformational idea. They have to make the choice to ‘believe’ what the innovators are saying to them, or invest in product ideas that are more familiar to them.

This dilemma leads a lot of companies to choose the safe route. However, there may be a solution to this quandary. As much as companies invest in researching technologies and products, they should also invest in researching new business models. So while our technologies are being developed and we are solving technical questions, we can also be researching customer needs, channels to market and revenue models. This can help us have more informed conversations about how to use the technology to solve customer problems and how to take our products to market once they are ready.

In this regard, Steve Jobs was not really a prophet or magician. He simply understood the market opportunity better that Xerox executives. He had already launched three versions of a personal computer. So when he saw the technology at PARC it was clear to him how this would benefit customers. The first three Apple computers could be viewed as unintended minimum viable products that tested the market for the eventual launch of the Macintosh. As the early Apple computers succeeded, they allowed Steve Jobs to learn about the market. This is something other companies can do in a more deliberate fashion with their new technologies.

PARC Turns A Corner

In 2002, PARC was spun off as an independent, wholly-owned subsidiary of Xerox. Since then, the organization has reinvented itself. It is now at the forefront of innovation and sustainable profitability. It has developed amazing software and hardware innovations that are used by large corporates, startups and the government. One key aspect of its business model is the revenue it generates from licensing its wonderful IP. According to an article in Harvard Business Review, PARC’s success is based on partnering closely with customers, great collaboration between internal teams and external partners, and great communication practices that are essential for coordinating work within the organization. So here is to another half-century of great technology. Combined with even greater business  models, of course!

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