Like many great companies, today the Falk Corporation is forgotten. At its height, it perfected the silicon chips of the industrial era. Falk designed and manufactured fat gears and thin gears, cheap gears and expensive gears, gears that could open the Panama Canal, and gears that fit on a small desk. It made gears for engines, dams, trains, conveyor belts, subway systems—any industry that needed to transfer power probably used Falk Gears.
There’s a good argument to be made that after a century of dominating the industrial era, it fell victim to the innovator’s dilemma. Falk’s corpse was sold for $295 million in 2005. Today it doesn’t even have a proper Wikipedia page.
I began researching the Falk Corporation because I wanted to learn more about the innovation network of Silicon Valley. It may seem odd to research a defunct Milwaukee-based gear manufacturer for this, but it makes sense when you ponder the history. By every conceivable measure Silicon Valley is the epic center of modern innovation. The bulk of the software and algorithms that power the world are designed inside the 20 mile region. Its evolution is also fairly straightforward: government subsidies, elite education system, solid business support and infrastructure, etc. In the early 1900s, as crazy as it sounds, that innovation epic center may have been Milwaukee. The industry was industrial metal fabrication, and in a span of about twenty years 10-15 companies that would dominate the mid 1900s sprouted within few miles. Six came from a 3-4 block radius in what is now known as Walker’s Point: Pawling & Harnischfeger (cranes), Kearney & Trecker (milling), A.O. Smith (car frames), Allis Chambers (everything), Nordberg and Chain Belt (mining equipment).
That’s what set me down the Falk Corporation’s path. I was trying to discover why it came to be, and what it means for today’s world–specifically building an innovation based economy. Here’s a super annotated version of my notes on the early history of the Falk Corporation. They’re primarily derived from the Milwaukee Public Library’s vast resources and the work of Milwaukee historian John Gurda.
In 1946, over a decade before he became the architect of the Vietnam War, Robert McNamara was hired to rehaul the Ford Motor Company. It was in desperate need of help. The iconic corporation was hemorrhaging about $9 million a month. McNamara, an accountant by training who rose to prominence by applying statistical methods to warfare planning, immediately transformed the culture.
Decisions were no longer made from the eye of a designer, or the experience of the line-worker. He immediately developed complex financial metrics to measure a product’s viability. Every penny spent in manufacturing, marketing, design, and engineering had to be justified and rationalized through this analysis. It shifted power from engineers to MBAs. Within three years he doubled the company’s profits. In Makers and Takers, Rana Foroohar argues that this was the end of American global automobile leadership. As crazy as it sounds, the question needs to be asked: Did modern finance destroy innovation?
Peter Drucker more or less invented management consulting. Here he is talking about the role of business school in American society.
Business schools no longer see themselves as social instruments. They want to be ‘respectable’, as say mathematics departments are respectable. But this is wrong. Professional schools are not intellectual institutions but social institutions. Old-timers at the business schools had one great strength; they knew what they were talking about.
Peter Drucker, Fortune, May 1963
In Dawn of Innovation Charles Morris argues that America’s economic dominance wasn’t driven by science, technology or ingenuity, but our commitment to mass production (scale). “The dominating American characteristic across all major industries,” he writes, “was the push for scale—adapting the production methods, the use of machinery, and the distribution to suit the product.” Viewing the world through this lenses reveals two myths; applying it to modern times illuminates the biggest issue facing modern governments—How to scale innovation in a knowledge economy.
In September 1987, nearly a year before Tracy Chapman sang about revolution, President Ronald Reagan started one in American policy—he started privatizing America’s public goods. The revolution didn’t happen overnight. In fact, most people didn’t even realize it occurred. As these two fantastic articles reveal, nearly thirty years later we’re dealing with the damaging consequences—economically, ethically, and mortally. Privatizing public goods can threaten nearly every aspect of our society.
Bell Labs, the world’s most innovative organization in history, had a simple view on innovation. Whatever improvement came out of their Murray Hill headquarters had to do the job “better, or cheaper, or both” than its predecessor. In thirty years, this philosophy allowed the company to develop semiconductors, lasers, fiber optics, solar panels, the Unix operating system, the C++ programing language, cellular phone networks, and much more. At its peak, America’s monopolistic telephone company was one of the most profitable organizations in the world. In his book The Idea Factory, Jon Gertner makes the case that nearly every single improvement in modern communications can be traced back to one lab, at one company—AT&T. Trillions of dollars in economic growth, millions of jobs, all from one group.
The question is, what can we learn from Bell Labs?
If they gave awards for the most comprehensive business books of the last ten years Factory Man by Beth Macy would be an unlikely–but worthy contender. It isn’t a TED ready think piece about the flattening of the world. Nor is it a feel-good call to revitalize American industry through disruptive innovation. Instead, it is a deeply reported narrative on the rise and fall of the American furniture industry. Told through the viewpoint of the Bassett Furniture Company, Macy explains how a manufacturing empire was created and systematically eroded. At first glance, the culprits of the decline are predictable: globalization and technology. Globalization because cheap Asian imports flooded the market at a fraction of the cost. Technology because advances in communications allowed businesses to build a supply chain that exported lumber from North Carolina to China, and the finished product back to American store shelves.
A lesser author would have ended the analysis there, but Macy peppers Factory Man with background and context allowing the real culprits emerge: systematically narrow management driven by orthodoxy and bad economic policy. The decline didn’t have to happen.
In the span of forty years the China performed a development miracle. It transformed itself from an agrarian afterthought to the world’s second largest economy. This was in spite of pervasive attitudes and policies that ran contrary to most Western economic thought. In as recent as 1980, the country’s official dictionary defined “individualism” as “the heart of the Bourgeois worldview, behavior that benefits oneself at the expense of others.” Analyzing how one person’s world went from rural farming to internet millions is a hard task. Distilling the thoughts and attitudes of a billion people and putting it in context of modern society is a seemingly impossible one. As I explain in my Age of Ambition review, Evan Osnos delivers the impossible. He answers the question, “At what cost was China’s development miracle?”
Contrary to what I want to believe 2015 is nearing an end and that means it is time to create my annual list of recommended books. If 2014 was my personal apocalypse, 2015 was the most demanding, unpredictable, and rewarding year of my life. Reading-wise I found myself diving head first into the civil rights movement and graphic novels, only to circle back to sports, entrepreneurship and science fiction. Hopefully you find something on this list worth reading; I know I did. If reading recommendations are your thing, check out last year’s The Best 38 Books I read in 2014 and The Best 27 Articles I Read in 2014.