In the late 1800s, men across the United States worked to improve the way people received their mail. They plotted and tinkered and eventually came up with a system in which the fastest horses were paired with the smallest men in order to speed up the process: the Pony Express.

Only a short while later the telegraph was invented, effectively putting the Pony Express out of business and dashing the hopes of these men. What should they have done differently?

In his Knowledge to Go Webinar titled "Open Innovation and Technology Transfer, Sustaining the Firm for the Future," Professor John Butler described the importance of innovation--and how the concept of innovation has developed since the days of the Pony Express.

"The first thing to understand is how the past informs the future," Butler says.

Butler, professor of management and society and director of the IC² Institute and the Herb Kelleher Center for Entrepreneurship and Small Business, emphasized the importance of factoring in innovation when developing a business. He described the ideas of the economist Joe Schumpeter's model, which provides a mathematical equation for profit.

"The Keynesian economic treatment is that innovation is literally outside the economy, and we can no longer maintain that," Butler said. "The question becomes, what is the profit needed to maintain jobs and create new ones?"

Butler also explained that in modern times innovation models and research have grown significantly. Current innovation is taking place in universities and public labs, which are then transforming the nature of business.

Austin, Silicon Valley, and Boston are all "clusters," which Butler described as areas in which certain factors allow innovation to truly take place. These clusters have a strong science base, entrepreneurial culture, ability to attract staff, etc.

To hear Butler's webinar and more on how innovation has helped "cluster" cities and companies including Whole Foods, Twitter and Apple, click here.