Quotes from: Closing the Innovation Gap (Estrin)

Closing the Innovation Gap, by Judy Estrin

Introduction: Innovation Is Not Optional

Chapter 1: The Capacity for Change

Curtis Carlson, CEO of SRI: "When you start a project, you don't know enough about the competition or the customer needs. You haven't developed the best ideas or the best technology. So it's the nature of the game that in the beginning, most of what you're going to do is going to be a failure."

"Best Buy launched an internal initiative to listen much more closely to the employees who were talking to customers every day."

"The willingness to give it a shot and allow people a second, third, or fourth act in their careers has differentiated not only Silicon Valley's but also America's culture from that of other countries. Nokia researcher Henry Tirri says, 'If I pose a queestion to a class of 100 students at a university in Finland, I'll get only one hand up, but I'll be totally convinced that the answer will be correct. If I do the same in the United States, I get 99 hands raised, out of which 90 are probably wrong. But they're willing to try.'"

"Openly sharing information also creates pathways for valuable feedback. Some of the most costly failures in Silicon Valley were the result of projects that had been kept under wraps for too long."

"Increasingly, leaders are recognizing the value of what IDEO, a leading product design company, calls T-shaped people — those who have a depth of knowledge in a particular area, but also the breadth to communicate well with people in other disciplines."

Chapter 2: The Innovation Ecosystem

Chapter 3: Inspirational Innovation

"Paul Baran was a young researcher at Rand when the U.S. Defense Department realized that its strategic command-and-control systems were vulnerable because they were over-centralized. By studying the ways in which the neural networks in the human brain recover from a catastrophic injury like a stroke, Baran and his team conceptualized models for a new kind of telecommunications network that would resemble a fishnet, with redundant links that enabled the network to automatically route communications around damaged areas. They discovered that when you have three times as many links as you need, there would always be a viable path through the network."

Bell Labs: between 1960 and 1983

* transistor, cell phone, laser, light-emitting diode, Unix, digital camera chips

* 6 Nobel prizes

* parent company was a government-sponsored monopoly

* financing came from a tax on phone service

Chapter 4: Narrowing Horizons

"The Vietnam War diverted money from basic research and resulted in increasing resistance to the military among university scientists."

"The founding of Nasdaq opened up another avenue of financial return, which in turn spurred more entrepreneurial activity. Unlike the NYSE's, Nasdaq's "trading floor" existed only in cyberspace. Nasdaq had lower listing requirements and fees, creating a vehicle that enabled smaller, more volatile companies to access public markets and fund their future growth."

"Legislation allowing pension funds to invest in venture capital firms [in the early 1970s] significantly increased the dollars available for startups."

In the 1980s (Reagan administration): "People who had been looking forward five to ten years were now looking only two to three years out, because they had to show commercial justification for their work. 'I saw this huge retraction in the research horizon,' recalls Van Jacobson... 'In Washington, you had to demonstrate two things: you had to use commercial gear whenever possible, and whatever you were doing had to be commercially relevant.'"

"In 1980, Congress passed the Bayh-Dole Act, giving universities ownership of intellectual property resulting from federally funded research... Bayh-Dole created a conflict between scientific motivations and financial ones — between the information sharing that is the coin of the realm in academia AND figuring out how to capitalize on intellectual property." (I reworded this.)

"This shift [toward more scientists becoming entrepreneurial] was heralded by some as progress: academic researchers were being brought down from their ivory towers to face real-world problems. But the effect was to narrow the scope of research to work that could be ported to the marketplace as quickly as possible."

Danny Hillis, co-founder of Applied Minds: "The very process of a company becoming good at its business is often a process of driving out the unknowns and the uncertainties. Lots of people have gotten much better at getting the slop out of the system. Unfortunately, that slop was where a lot of the innovation was happening. It provided the openness to look for new opportunities."

"Start-ups became the research engines of the pharmaceutical industry."

"The discovery of DNA in the 1950s occurred at about the same time as the discovery of the semiconductor. But there was no way that scientists could deal with the vast number of variables and complexity of genetics without the aid of computers... 'It was almost like there was a holdup in biology until the semiconductor led to the type of computing power thta allowed you to be able to look at a system that had 20,000 independent variables, or genes,' says Genomic Health CEO Randy Scott. 'But once the technology for experimentation started to come into play and the computer technology was there to be able to analyze it, that's when the game really started.'"

Around 1989: "The technology industry was so strong that no one noticed that we had stopped planting the seeds of future growth. The rest of the world was not standing still. The number of articles in science and engineering published by U.S. authors stayed flat through the 1990s, while people in other nations were growing more prolific."

"The pharmaceutical industry focused on making drugs for which millions of prescriptions are written every year. 'We drove the world to a blockbuster model,' says Genomic Health CEO Randy Scott. 'It has become so expensive to develop a drug that the only drugs you can justify developing have to be worth half a billion to a billion dollars or more.' To sell those drugs, Big Pharma pushed for the ability to market its products directly to consumers... [in 1997 the FDA changed its policy to allow this] Dollars spent on pharmaceutical advertising have increased 28 percent a year since then." (emphasis mine — wow that's huge)

"By then, the role of start-ups in driving innovation was becoming so clear that many larger companies were beginning to depend on them for their own growth. Partnerships and acquisitions became a key strategy for 'outsourcing' innovation..."

Heidi Roizen on the late 90s: "In that crazy period, you saw the emergence of the entrepreneurial equivalent of the day trader. They saw an opportunity to get rich by building something that somebody wanted to buy and flipping it."

Chapter 5: Losing Our Balance

"Less than a year after the first hint of corporate scandal, in July 2002, Congress passed the Sarbanes-Oxley Act (SOX). The 66-page legislation, passed with very few 'no' votes, established new standards for U.S. public companies, boards of directors, management, and public accounting firms... it added millions of dollars a year in expenses for compliance and legal fees that could have gone toward R&D and innovation."

"The administrative and financial burden of SOX compliance was especially tough on small to medium-sized businesses."

"Shareholderes became more active and vocal, demanding to know, 'Where were the board members at Enron or WorldCom?' With each new investigation, pressure was put on directors to show their muscle, eroding the critical trust relationship between shareholders and boards, and between boards and management."

"There were also new regulations in investment banking that attempted to address real and potential conflicts of interest that arose during the bubble. A side effect of these new laws was that a lot of talent moved from investment banking into firms that were not subject to regulation, such as venture capital and hedge funds."

"The excesses of the dot-com era exposed weaknesses in judgment, controls, and regulation. But the overreaction of the country's leadership had the unintended consequence of creating an atmosphere in which boards and executives were less willing to take meaningful risks on products and business strategies. The real punishment was to long-term shareholder returns through a loss of focus on innovation."

Chapter 6: Green-Thumb Leadership

"To create room for risk taking, you have to actively protect those who have been involved in a project that doesn't succeed beyond saying that they didn't get fired — this time. Too often, other employees want to punish innovators who fail, becqause they were competing for the same resources."

"if you talk about user-contributed content, few people think about Disney. But it was the first to come up with the concept in 1989, recognizing the trend of people using portable video cameras to record family events that were not only valuable keepsakes for posterity, but often hilarious. The result was America's Funniest Home Videos, which debuted nearly two decades ago. 'Why is it that five years ago we didn't see that you could collect videos on the Web and create a site that mirrored the show, with a bit of a twist?' ... It took a start-up like YouTube to think orthogonally and apply the home-video concept to the Web."

"Being open to new ideas also means being willing to cannibalize your own product or business model before someone else does. The music industry could have benefitted greatly by opening its eyes and changing its distribution model before Napster did it for it. The newspaper industry is currently ripe for such a quantum shift..."

"Requiring that a proposed project or service have demonstrated demand can also kill off a company's future growth, he [FedEx CEO Fred Smith] adds. 'It's like saying there's not much demand for people crossing the Hudson River at 96th Street. You have to build the bridge before there's a market.'"

"One force that insidiously undermines the health of baby tigers is the tendency of small business units in large companies to feel that they are undervalued and of marginal importance. Any large and profitable venture tends to become obsessed with the business that led to its first success, which steals energy from the risk-taking, exploratory ventures that could turn into the next one."

"'The genomics of the future is going to be able the science becoming more personalized for smaller markets,' says former FDA commissioner David Kessler... This will require adapting test methodology and developing new ways to identify the efficacy of a drug earlier in the testing process, such as measurement techniques that rely on molecular genetics to track the progress of specific diseases."

"'Most of us have gotten trapped by our own business models,' says Autodesk's Carol Bartz. 'We're expected to make a lot of money so we can take our 90 percent gross margins. But it's a shame we couldn't take 10 of those points and do more research, because we've allowed ourselves to be bound by expectations and become victims of our own success.'"

"In the mid-1980s, Intel made a bold move that ended up saving the company — exiting from the declining memory business and focusing on microprocessors. But that move was possible only because a small team at Intel was already developing microprocessors."

"The corporate research organizations of today can no longer afford to run like the ivory-tower labs of the past, centralized and isolated from the mainstream business. Instead, they shold be porous, providing tight connectivity with the rest of the company."

"Some leaders today have an aversion to the concept of separate groups committed to basic research, seeing them as an antiquated organizational structure. 'The research stuff on the hill is death,' says Eric Schmidt of Google. 'It may be a good model for someone else — though I doubt it — but it's clearly a bad model for us.' ... Google Research is tightly integrated with the core business, which keeps it tethered to real-world needs."

"At Applied Minds, the first test of a new idea is a gut-level one: is the proposed project something that people would feel good about working on? The second test is economic, a classic risk-reward analysis. The third test is whether or not the employees believe they would do a better job of executing the project than anyone else."

"Best Buy has adopted the strategy of creating small, temporary networks to tackle specific projects, drawing people from diverse areas of the company."

"People who naturally play the role of knowledge connectors are critical when building relatinoships across communities, disciplines, or divisions, facilitating communication between disparate groups. The best connectors can quickly synthesize information across a broad range of topics, communicate well, and bring the right people together..."

"Opportunities for acquisitions or partnerships that could bring benefit to multiple businesses within a company often fall through the cracks because no one is willing to champion or pay for something that will be shared across the company. Levy [managing director of Silicon Valley Connect] calls this the 'integrator's dilemma.'"

"'If you overimpose metrics, you sacrifice creativity and open thinking,' says Joost CEO Mike Volpi... Metrics-driven bonuses are easy to implement and understand, and are effective when focusing on yearly financials and incremental improvements. But they need to be complemented with programs that reward behaviors that are not measured in a spreadsheet, recognizing and rewarding value creation in addition to today's revenue and profit."

About offshoring: "For products that are well defined, the assignment of labor to far-flung groups can be relatively straightforward. Forcing this discipline too early can limit the kind of broad-based exploration that thrives in face-to-face interactions and in fruitful collaborations among engineering, marketing, and management. For companies with advanced technology groups, it's best to create networks of complete teams, as opposed to just offshoring a piece of the development."

"Because of SOX regulation, companies now have to be larger to go public, so more companies are opting for getting acquired instead."

"To make a difference, some of these [green] technologies will require infrastructural changes that only very large companies or the government can provide."

"Private equity buyouts of public companies release those companies from the pressure of meeting the Street's quarterly expectations. But the companies end up under mountains of debt, and suddenly every staff meeting is focused on how to pay the interest on the loan..."

Chapter 7: Reviving the National Ecosystem

Chapter 8: Next-Generation Innovators

"But one-third of our eighth graders never receive a high school diploma, and of those who do, 40 percent do not pursue a college education. And half of those who do enroll in college never earn a bachelor's degree." (Shocking if true)

"Some elementary school teachers may have taken only one introductory course in math or science while earning their teaching credentials. 'Many teachers are very fearfl of science and math,' says Sally Ride, 'so they actually teach in a way that discourages kids from asking questions.' But learning how to ask questions and test hypotheses makes these subjects interesting and is crucial in learning how to think like a scientist."

"Teaching math and science skills presents a special challenge because students need to understand each level before moving on to the next. In an increasingly mobile society without consistent educational standards, it's too easy for students to miss a step along the way... Agreeing on a shared set of federal milestones would not be interfereing with states' power to select a curriculum — it would just be ensuring that kids throughout the country are getting the same basic level of education."

"Now the country [Singapore] is implementing what's called the full inquiry method, with teachers emphasizing questioning among small groups of students. 'I've watched groups of seventh graders doing Newtonian mechanics, all trying to get a gut level understanding of what Newton's laws actually mean. Then they have to explain their understanding to other kids in the class. It's just awesome,' he [scientist John Seely Brown] says."

"Most of the chemicals that were once staples of home chemistry sets are now illegal to sell to children. Even in science classrooms, fears about safety and liability are limiting hands-on experimentation."

"we can now build virtual words that would have cost millions a few years ago. 'I got wrapped up into a protein in a 3-D game a few months ago,' says John Seely Brown. 'Now I know why protein folding is so complicated. Before that, I had no visceral sense of what a protein was.' Computation and visualization can bring dry science lessons alive, and even restore a sense of awe about the ways the universe works."

Jamshed Bharucha, Chronicle of Higher Education: "We learn more effectively when we generate the material to be learned than when we passively receive it."