A Conservative Innovator: Thomas Edison as International Entrepreneur
David Hochfelder, Thomas A. Edison Papers, Rutgers University
Thomas Edison is best remembered today for systematizing and
rationalizing technological innovation. His laboratories during the 1870s and
1880s were the forerunners of twentiethcentury industrial research and
development divisions in sciencebased, capitalintensive industries. The most
significant innovation to arise from his laboratories was his system of electrical
power and lighting. Unlike previous researchers, Edison conceived of electrical
lighting as a comprehensive system, and he developed a vastly improved
generator, a reliable incandescent lamp, a method of current distribution, and
fixtures like sockets and fuses. The ultimate benchmark of achievement for
Edison was commercial success; he designed his electrical lighting system to
compete with existing gas illumination and, above all, to make money for himself
and his financial backers.
Despite his technical and commercial achievements in electric lighting,
Edison was unable to create an enduring corporate structure. He began working
on the problem of incandescent lighting at the end of 1878 and within ten years
he had retired from active management of his lighting business, leaving it in the
hands of financiers like Henry Villard and John Pierpont Morgan. We use
Edison’s efforts to establish electrical power and lighting businesses in the United
follows strategy. Edison's strategy for his lighting business had three broad
elements. First, Edison regarded technical excellence as paramount to his
financial success. His marshalling of an international scientific network and his
lavish displays at expositions served to validate the technological superiority of
his system. Second, by his own admission Edison wanted to “make money to
keep on inventing.” As a result, he used most of his profits to finance his
laboratories rather than to capitalize ongoing endeavors. Third, Edison preferred
a governance system in which he could retain personal control of operations
through trusted associates, rather than a governance system based on
impersonal contractual means.
Thus, Edison was at once innovative and conservative. He developed
new technologies which transformed Western society at the end of the
nineteenth century and moved them to consumer markets through creative
branding and marketing techniques. Yet his business methods and structures
were similar to those of a traditional proprietary capitalist. Edison depended
heavily on relationships of personal trust and friendship to commercialize his
electrical technologies. Thus, Edison is an excellent starting point to examine the
relationship between innovation, commercialization, and firm structure in the late
nineteenth century, and to reflect on the standards which historians have used to
In September 1878 Edison publicly announced that he had solved the
problem of incandescent lighting, telling a reporter for the New York Sun, "When
the brilliancy and cheapness of the lights are made known to the publicwhich
will be in a few weeks…illumination by carbureted hydrogen gas will be
discarded." Edison was overly optimistic: it would be another four years and
nearly half a million dollars before his system was technically sound and
commercially viable. Yet he began to recruit investors immediately, both in the
US and in Europe. Edison realized he would require much capital to perfect his
system and Grosvenor Lowrey, Edison's patent attorney and financial advisor,
urged him to bring in Drexel Morgan "before the thing gets larger." While he
recommended that Edison should retain limited roles for his existing
representatives, he told Edison, "Two things must coincide: you must vanquish
all the difficulties in nature and your financial agents must have the standing to
enable them with a strong hand to put aside all compet[it]ors in the financial
field." Lowrey convinced Edison and in midNovember he wrote his Paris
representative Theodore Puskas that after promising him control of the electric
light on the Continent, he had come to realize that he "had opened a field of
investigation which would not only take a great deal of time but also a large sum
of money" and that he could only succeed with the financial backing of Drexel,
Morgan and Co. When Puskas refused to take a reduced share of 10% of the
net profits instead of half which Edison had previously promised him, Edison
up capital against the competing interests of major financial backers like Drexel
Morgan and his existing network of business agents.1
Edison was able to postpone these issues for a few years; he did not set
up a light company for Continental Europe until the end of 1880 and it was only
capitalized in the fall of 1881. In the meantime, Edison had often exasperating
dealings with his overseas agents managing his telephone business. Edison
faced two major problems: adjudicating between his often fractious agents, and
obtaining sound and timely information about their activities. These problems
would persist in his efforts to commercialize his light and he overcame them by
sending trusted associates Edward Johnson and Charles Batchelor to England
and France to sort matters out and to provide reliable intelligence.2
Edison faced competition from several other inventors in incandescent
lighting, but he believed that he had a sound business strategy to beat them.
This strategy was rooted in a firm belief in the technical excellence of his system
and in personal control over his companies' operations. Edison's strategy
diverged in important ways from one in which shortterm financial success would
have been paramount and thus often led to rocky relations with his domestic and
overseas financial backers. First and foremost he believed that the
completeness and superiority of his system would prevail over the piecemeal
work of his competitors. Closely related to this, he regarded continued
innovation to improve the system's capabilities and to reduce manufacturing
protect market share. Secondly, his experience in marketing his telephone in
Europe taught him to distrust armslength relations with overseas agents and to
rely on close business associates instead. The technical complexity of his
electrical lighting system and manufacturing processes also increased his
reliance on trusted colleagues with indepth practical knowledge of dynamos and
lamps.3
Edison did not neglect advertising but chose ways to publicize his lighting
system while displaying its technical superiority, particularly through lavish
exhibits at international expositions, such as the International Electrical
Exposition held at Paris in the fall of 1881 and the Crystal Palace show at
London in the spring of 1882. Edison garnered top awards at these expositions
and his displays won over the scientific and engineering community, even some
of his most vocal detractors.4 More importantly, Edison's displays generated a
great deal of commercial interest. In September 1881 Charles Batchelor, who
was managing his display at the Paris show, wrote him that he "could take a
couple of orders per day" for isolated lighting plants, and he urged Edison to
exploit this opportunity as soon as possible. Both the French patent law (which
required patented devices to be produced in France within a specified time) and
import duties made it desirable to set up manufacturing operations there soon.
Edison replied that he wanted to incorporate a European company capitalized at
$20 million, with $1 million set aside for manufacturing facilities. His reply neatly
working capital, the paramount importance of technical excellence, and the
desirability of control by trusted associates:
With one million dollars in the Construction Co[mpan]y run by our men and started by us we having absolute control the first year there would not be any doubt about the technical success of the enterprise and if the
technical success is assured the commercial success would naturally follow and the whole thing would be a success while most inventions sent over there have been just the opposite….As to the Installation of these various works I shall have to depend on you entirely.5
In England Edison also relied on the technical excellence of his system to
best his competitors. In October 1881 he cabled Edward Johnson that "we can
swamp all infringers without litigation give them plenty of rope and they will kill
themselves….our prices, economy and life [of] lamps being impossible to
infringers" In England, as opposed to France, Edison decided that it made more
sense to ship dynamos and lamps from the United States for the time being,
noting that shipping rates and import duties were low, and that lamp
manufacturing required a skilled and experienced work force. He was also
willing to forego a profit for a few years and to sell his installations at cost in order
to establish a strong market presence. As a result, his New York dynamo and
lamp factories operated close to the financial edge and often experienced severe
cash shortages. Thus he depended on prompt payment from his British
company for their orders and complained several times to his British
representative George Gouraud that he was too slow in paying for his orders: "I
very large & consequently expensive shop, my resources of manufacture are
taxed to their utmost…Were I a millionaire I should not be quite so sharp after
such things but as I am not & have to stand personally a weekly expense of from
$20,000 to $25,000 I have to take very great care to keep myself out of what
would be a very big hole." On the other hand, his British investors frequently
complained that Edison's prices were too high and they urged him to lower them.
He replied that while the first cost of his equipment might be higher, his dynamos
and lamps were cheaper to operate and were more reliable; furthermore, he
pointed out, he was not yet making a profit from the sale of lighting equipment to
the British company.6
As his correspondence with his British representatives shows, Edison
found that managing his European lighting business was often frustrating. At the
same time, however, his domestic lighting business was succeeding quite well.
Thus in the spring of 1883 he implored Batchelor and Johnson to return to New
York. Batchelor chose to stay until the spring of 1884, after he had believed that
he had placed the Continental business on a sound footing. Edison urged
Johnson even more strongly to return, writing that "I judge that our London
Friends think they can get on better without us If so the best thing is to let them
do so and to give our attention to the 'western Empire' alone….I am more than
ever convinced however that if the business is to be made a success it must be
by our personal efforts and not by depending upon the officials of our
this Country and that here we can get things done just as we say, and I therefore
think it is best to concentrate our efforts on an American certainty rather than an
English possibility." 7
According to his secretary Samuel Insull, Edison asked Johnson and
Batchelor return because "the Edison Electric Light business is not run well & so
much impressed is Edison by this fact that he has practically left his Laboratory &
now makes my Office his Headquarters & is attending to purely business
matters…So Edison decided to 'drop science & pursue business.'"8 It is clear that
Edison preferred the work of developing new and challenging technologies to
running his existing companies, and that his management methods and goals
often diverged from the wishes and interests of his financial backers. In the
summer of 1883 he remarked in an interview to the trade publication Electrical
World, "I have come to the conclusion that my system of lighting having been
perfected, should be promoted, and I could take hold and push the system better
than anyone else. It is so complicated that I do not like trusting it to new and
untried hands, because science and dollars are so mixed up in it."9
In October 1884 Edison found himself in a struggle with the Drexel,
Morgan interests over control of his lighting businesses; as he alluded to in 1883,
the conflict was between the existing management, who sought above all to
safeguard the interests of the investors, and Edison and his supporters, who
wanted to pursue a more aggressive policy of expansion and continued
and a stockholder I am sorry at this collision. If you win, your capitalists are
alienated; and if they win you are disaffected."10 Edison won his proxy fight and
installed a management congenial to his views, including Edward Johnson as
overall manager. By 1886 Edison and Johnson's policies proved successful, and
in that year the Edison Electric Light Company's profits exceeded the profits of all
the previous years combined. With trusted associates in charge of the parent
company and the three manufacturing companies,11 Edison felt free to build a
new and lavishly equipped lab at West Orange, New Jersey, in 1887. His return
to the laboratory reduced his active involvement in his electrical companies,
although he continued to act as a technical consultant and retained a significant
financial interest. In 1889 GermanAmerican Henry Villard effected a
consolidation of all the Edison companies into Edison General Electric, and by
1892 it, along with the ThomsonHouston company, would serve as the nucleus
of General Electric, a large corporation in which Edison had at best a minor role
in its management.
Edison was uneasy with the trend toward consolidation in the electrical
industry, no matter how much investors and bankers welcomed it. Instead, as he
expressed to Henry Villard in April 1889, he preferred a "Brainy aggressive
competition." In an industry devoid of competition, he warned, "my usefulness as
an inventor is gone; my services wouldn't be worth a penny. I can only invent
under powerful incentive. No competition means no invention. It's the same with
ambition to work." A year later, when Villard was exploring a merger with
Westinghouse, Edison again wrote him that "it is very clear that my usefulness is
gone…[Y]ou will see how impossible it is for me to spur on my mind under the
shadow of probable future affiliations with competitors, to be entered into for
financial reasons….I would now ask you not to oppose my gradual retirement
from the lighting business, which will enable me to enter fresh and more
congenial fields of work."12
Edison's heartfelt remarks to Villard lead to a question: how should
Edison be evaluated as an business leader? Or, to return to Chandler's
argument that structure follows strategy, how should Edison's strategy be judged
when he left no enduring corporate structure? Edison has been typically viewed
as a mediocre or uninspired businessman or as an oldfashioned proprietary
capitalist. These judgements need to be tempered. Unlike many of his
contemporaries who amassed wealth or built empires, Edison worked in several
fields of innovation simultaneously. Furthermore, while he regarded commercial
viability as the ultimate test of his inventions, personal wealth or corporate
profitability were not his primary motivations. It is perhaps best to evaluate
Edison as a business leader in terms he would have understood: whether he
1 Paul Israel, et al., The Papers of Thomas A. Edison, Vol. 4 (Baltimore: Johns Hopkins University Press,
1998): Docs. 1439, 1451, 1497, 1498, 1520, 1558, 1566, 1570, 1596, 1612. (Hereafter cited as TAEB Doc. xxxx.)
Edison did not install his first commercial lighting plant, on board the steamship Columbia, until the spring of 1880 and did not begin operating his first central station at Holborn Viaduct, London, until early 1882. Paul Israel, Edison: A Life of Invention (New York: John Wiley & Sons, 1998):197, 216218.
Lowrey was instrumental in negotiations with the principal Western Union stockholders that led to the formation of the Edison Electric Light Co., as well as in negotiating with Drexel Morgan for foreign patent rights for the light.
2 TAEB Docs. 1825, 1837; TAE draft to Gouraud, 2 Aug. 1881 (TAED D8149ZAB; TAEM 59:971). (TAED and TAEM refers to the digital and microfilm editions of the Thomas Edison Papers, respectively. To view a digital document, go to http://edison.rutgers.edu/singldoc.htm and enter the document ID given. The TAEM citation refers to the reel and frame of the Edison Papers microfilm.)
3 Indeed, much of his correspondence with Edward Johnson and Charles Batchelor, who oversaw his British
and French lighting businesses for several years in the early 1880s, involved detailed technical matters regarding the installation and repair of lighting plants. See for example Edison to Batchelor, 31 Dec. 1881 (TAED LB009489; TAEM 81:178); and Edison to Johnson, 31 Dec. 1881 (TAED D8133ZBS; TAEM 58:820).
4 See for example William Preece's remarks reprinted in the Edison Electric Light Company Bulletin 2 (7 Feb.
1882):1 (TAED CB002; TAEM 96:672).
5 Batchelor to Edison, 6 Sept. 1881 (TAED ; TAEM ); Edison to Batchelor, 13 Sept. 1881 TAED D8132ZAK;
TAEM 58:466).
6 Edison to Johnson, 30 Oct. 1881 (TAED LM001079B; TAEM 83:911); Edison to Drexel, Morgan & Co., 18
Oct. 1881 (TAED LB009204; TAEM 81:71); Edison to Gouraud, 23 Oct. 1881 (TAED LB009221; TAEM 81:82); Edison to Gouraud, 11 Nov. 1881(TAED LB009283; TAEM 81:97); Edison to Arnold White, 12 Sept. 1882 (TAED D8239ZEF; TAEM 62:1062).
7 Batchelor to Edison, 16 March 1883 (TAED D8337ZAP; TAEM 67:683); Edison to Johnson, 5 March 1883
(TAED LB013012; TAEM 81:777).
8 Insull to Johnson, 3 April and 4 June 1883 (TAED LM003120, LM003160; TAEM 84:103, 84:138).
9 This quote is from Harold Passer, The Electrical Manufacturers, 18751900 (Cambridge, Mass.: Harvard
University Press, 1953):98.
10 Barker to Edison, 26 Oct. 1884 (TAED D8403ZID; TAEM 71:319).
11 In addition to Johnson's management of the parent company, longtime associates Francis Upton, Charles
Batchelor, and John Kruesi had charge of the Lamp Factory, Machine Works, and Tube Company respectively.
