Book review: “Closing the Innovation Gap”

We have often highlighted here Apple’s record of innovation in the last decade as a vertically integrated organization that remains unmatched among technology companies. But what if you could sneak into the Cupertino campus one night and steal Apple’s Secret Sauce of Innovation?

You would, of course, accomplish nothing. Innovation is much more than manufacturing disparate gadgets that we’ve come to know as the proverbial “iPod-killers.”

Just as there are basic laws that underlie biological ecosystems, there is a set of core values that must work in balance to support innovation: questioning, risk taking, openness, patience, and trust. These values are the foundation of innovation.

So says Judy Estrin in her new book Closing the Innovation Gap: Reigniting the Spark of Creativity in a Global Economy that highlights innovation ecosystems not only at Apple but also others like Pixar, P&G, FedEx, Cisco, Genomic Health, eBay, Google and Intel.

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Estrin’s credentials are well established. She started out as the youngest and the only female member of Vincent Cerf’s team that created TCP, the core transmission protocol of the Internet. An engineer by training, she was CTO at Cisco and a three-time member of Fortune Magazine‘s list of the 50 most powerful women in American business. She’s been a board member of many companies including Walt Disney, Rockwell, Sun and FedEx as well as an advisor to Stanford’s School of Engineering and Bio-X initiative.

Killing the golden goose?

So it’s no coincidence that she brings a keen eye to understanding what engenders a sustainable culture of innovation, especially in the Silicon Valley. And, parsing the record since the ’80s, she does an even better job of also explaining what kills it. The preface to the book frames the argument:

I was fortunate to be born at a time when the nation understood the importance of science, technology, and innovation, and encouraged taking risks…I’m convinced that my son’s generation will not have the same opportunities that I enjoyed, as the country has become increasingly more focused on short-term gains.

With copious examples, Estrin pinpoints specific legislative, regulatory and economic changes such as accounting laws, Sarbanes Oxley corporate compliance, direct-to-consumer pharmaceutical advertising, defensive medical practice and federal grant allocations that have constricted ways in which innovation can happen and take root.

Process vs. innovation

On a company level, “executives, boards of directors, and investors all need to understand that there is a time for applying disciplined rules and metrics and a time for trust and patience,” argues Estrin:

“Company leaders can’t just treat innovation like a spice to be sprinkled here and there. Large companies have to make a commitment to having some pieces of the company that are outside of, yet still connected to, normal business processes.”

A great example of this in the book is a Google manager who decided to hire an entire team of speech technologists because he thought they were really smart, without any idea what specific product they might build at Google. CEO Eric Schmidt says Google is poorly managed by design and had no idea his company had a world-class group working on speech recognition and likely would not have approved the hirings himself. “Part of our culture is that the management don’t need to check with me,” Schmidt says. Innovation works in unexpected ways: that team’s efforts turned into GOOG-411 directory service which refines phoneme recognition so that speech-to-text conversion of YouTube videos can better be indexed, searched, and ultimately monetized, as we recently illustrated here.

“Failure can be just another step towards success”

“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,” cautions Estrin and cites a celebration party thrown by Genomic Health for a project that failed. She also points out that Apple’s failure to capitalize its early lead in Wi-Fi by restricting its AirPort base stations to Macs was not repeated when a Windows version of the iPod was quickly released, as former Apple VP Jon Rubinstein put it: “That was a mistake I wasn’t going to make again.”

“Where the puck will be”

In the early days of the iPod, of course, focus groups would be shown clunky and hard-to-operate MP3 players and asked if they’d like to purchase one. Many refused. When shown an iPod that performed the same function but much more elegantly and invitingly, however, most wanted one. Estrin explains:

The challenge when identifying areas of future growth is to free one’s mind from the needs of today’s customers and to think like someone starting a new business from scratch. “Mostly what we do is give people what they want before they know they want it,” says Disney’s [CEO Bob] Iger. “We had to be creatively innovative. If we had asked people ‘Do you want to watch a pirate movie?’ it is possible that 90 percent of them would have said ‘God, no; that is yesterday.'”

Poseurs

But who will provide the financial resources necessary for innovation? Citing short-sightedness, inflated expectations, emphasis on process rather than nurturing, inability of new generation of money managers posing as VCs to understand technology, and their confusion between market creation and market serving, Estrin’s views on venture capitalism are not optimistic:

“Overall, I’m not confident that we learned the right lessons from the crash and burn of the previous decade. Trendiness in deal valuation still reigns supreme in the Valley.”

Losing the spirit?

With a newly-elected administration still searching for a “national CTO” and the nation discussing if the entire auto industry should be rescued from certain bankruptcy, the themes explored in Closing the Innovation Gap are quite timely:

Innovation is not important just to the business community. The quality of life that we’re accustomed to, financially and socially, is dependent on growth. If one person’s gain is seen as another’s loss, optimism, openness, and generosity are replaced with self-protection and fear.

The curiosity and openness that have defined the American character since the founding of this country have been replaced by fear and apathy. The patience to cultivate potentially great things for the future has been trumped by a mania for instant gratification.

Is there any hope?

The book oscillates between our great record of innovation in the ’50s-60’s and the obvious slippage over the last three decades. How do we reboot then?

There is no innovation that is more important for the world than the development of young minds.

Estrin’s approach to creating the next generation of innovators is a pragmatic one (just like her father showed her while she was an undergraduate at UCLA in the era of time-share mainframes) to “breakdown the program into smaller, more solvable pieces” to debug it:

Once we correctly identify the nation’s short- and long-term needs, we can try various approaches on a smaller scale — in one or more schools or districts — and then share and evaluate to determine the methods that should be rolled out on a broader basis.

West Cost vs. East Coast

Closing the Innovation Gap is not a polemical book. A deeper analysis of how politics impacts innovation, perhaps a more Belt Way approach, is not Estrin’s focus. For example, how public funding of basic research leads to commercial application of technology and monetization by private interests or how governmental attempts to pick winners in various industries and technologies can backfire are not discussed in any detail. It is mostly an exposé of the varied facets of our innovation dilemma seen through the West Coast/Silicon Valley perspective. In that it excels.

4 thoughts on “Book review: “Closing the Innovation Gap”

  1. Pingback: Former Cisco CTO Judy Estrin on Innovation | Big Winner

  2. Yes, but they can only do that because they don’t need to “hit the market” for capital. All of those companies are rich, all have very long runs of profitability and no to little debt. They are immune to the stupidity of investment bankers and Wall Street.

    Imagine if Apple had to issue fresh shares to pay for the iPhone roll out or to borrow money to pay for their new retail strategy. They would have gone cap in hand to the investment bankers who would put their fingers in every operation of the company. There would be covenants on the loans and on-going compliance meetings.

    I may be preaching to the converted, but I despise investment bankers and stock brokers, the culture of greed they have developed and how they have corrupted the long term investment in growing companies that the stock market was developed for into short term get-rich-quick scheme.

  3. Richard Stacpoole: “Why would a CEO risk their job?”

    Are you saying we needed a far deeper economic crisis to demonstrate once and for all that quarterly-profit maximization is untenable and must therefore be completely revised with different incentives? :-)

    We do have companies, to be sure, that engage in longer-term management though: Microsoft, Cisco, Google and Apple, to cite a few tech outfits.

  4. I think a major reason for less risk taking is the corrosive short term thinking prevalent on Wall Street and in the “professional” investment community. A extra million now is worth more than 10 million in even a year. Why would a CEO risk their job?

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