The Challenge of Remaining Innovative: Insights from Twentieth-Century American Business (review)

In this volume, several prominent business historians and management scholars contribute essays on the organizational challenges of generating and sustaining innovation. Each essay engages the ideas of economist Joseph Schumpeter and historian Alfred D. Chandler Jr., who together believed that "large, vertically integrated, managerially directed" firms had become "the most important source of innovation" by the early twentieth century (pp. 2-3). The authors acknowledge various critiques of this view and duly recognize alternative sources of innovation before embarking on a reexamination of corporate research and development (R&D), "emphasizing the complexities and contingent nature" of its "leading role" (p. 3).

The volume's central thesis is that, in order to remain innovative, firms had to effectively "manage their organizational boundaries," especially the flow of information (p. 3). Successful companies had to coordinate the activities of their R&D labs and operating units to leverage firm-specific capabilities, while simultaneously cultivating external sources of knowledge, including independent inventors, academics, consultants, trade associations, and even rival firms. Meanwhile, businesses had to adjust to evolving government regulations that changed the rules of the game and redrew the boundaries of legal activity. Accordingly, following the editors' general introduction, the individual chapters move organizationally outward, first considering individual inventors, then individual firms, then clusters of firms and outside intermediaries, then the relationship between firms and the state.

The prologue, by coeditor Naomi Lamoreaux and the late Kenneth Sokoloff, examines how the increasing capital requirements of developing new technologies gradually pushed inventive activity inside firms. Using statistical analyses of patent assignments, they show that twentieth-century inventors increasingly formed corporate attachments, either as employees of in-house R&D labs or as principals of small start-ups.

Part 1 examines the process of innovation within prominent firms. First, Margaret Graham describes Corning's early history as an innovative producer of specialty glass and its subsequent postwar struggles with commodity products like television tubes and windshields. The firm rebounded by drawing on its earlier tradition, tapping risky, initially niche markets in catalytic converters and optical fibers. Next, Paul Miranti examines how AT&T developed advanced statistical techniques to estimate future capital investments in switches and trunk lines, then sustained this innovation by applying it broadly across the firm's operations. Finally, Ken Lipartito describes the ascendance of Bell Labs under director Frank Jewett, who masterfully integrated scientific research, product engineering, and economic considerations to great success. However, Lipartito argues that the lab faltered when it became too enamored of pure science over the other two pillars of the "Jewett synthesis."

Part 2 explores relationships among firms and other outside entities. First, Stephen Adams reprises how Stanford provost Frederick Terman created symbiotic ties between the university and the nascent Silicon Valley. He then examines Terman's failed efforts to launch Summit University, the intended anchor of a proposed high-tech region in New Jersey. Then Joseph Pratt describes the "offshore fraternity" of oil firms, construction companies, academic geologists, and weather consultants who collectively learned to manage the risks of drilling in the Gulf of Mexico. Finally, Christopher McKenna critiques the ahistorical approach of successive generations of management scholars who distorted the facts underlying Honda's success in the American motorcycle market, a classic business-school case study. Taking inspiration from the film Memento (2001), McKenna's narrative runs backward from 2003 to 1973. As he strips away each layer of didactic half-truth, he concludes that history matters when teaching strategy.

Finally, part 3 considers how government policies impact innovation. Coeditor Steven Usselman describes how antitrust pressures forced IBM to unbundle its tightly integrated package of hardware, software, and consulting services, speeding the implementation of strategies it was already considering. Sally Clarke, the third coeditor, shows how auto dealers managed the external regulatory environment by successfully lobbying for the liberalization of consumer credit laws. This ended various forms of credit discrimination and enabled...