Silicon Valley’s ‘Tech Innovation Deficit’

From left: JLabs CEO Judy Estrid, Microsoft Research’s Rick Rashid and IBM Research’s Josephine Cheng Photo Credit: David Needle Click to enlarge.

MOUNTAIN VIEW, Calif. — Is Silicon Valley and the broader tech industry gripped by:

• A: An innovation deficit.
• B: Fear of failure.
• C: Greed and short term thinking.

Each possibility got a thorough airing here at an event titled “The Innovation Economy: R&D and a Crisis” on Microsoft Research’s Silicon Valley campus, sponsored by the Churchill Club. Judging by the audience’s reaction, it’s fair to add a ‘D’ choice as well: “Meddling MBAs and lawyers.”

Josephine Cheng, an IBM (NYSE: IBM) vice president and fellow at its Almaden Research lab, suggested the problems in the U.S. were partly because we have “too many MBAs and lawyers. We need to go back and focus on basic science, technology and education and don’t [encourage] so many people” to become MBAs and lawyers.”

Cheng’s remarks drew the second biggest round of applause of the night. Rick Rashid, Microsoft’s vice president of research, drew the biggest applause partly at Cheng’s expense. After hearing dour assessments from other panelists on the state of innovation, Cheng noted IBM continues to generate patents at a healthy clip.

“The number of patents
is a horrible metric,” Rashid broke in. “That just shows how much money you wanted to spend on lawyers,” he added to sustained applause. Rashid should know; his employer, Microsoft (NASDAQ: MSFT) was just awarded its 10,000th patent last month.

Judy Estrin stood out as the most passionate speaker on the topic, which is one she researched in depth for her recent book Closing The Innovation Gap:
Reigniting the Spark of Creativity in a Global Economy.

Estrin believes the causes of the financial crisis are symptomatic of an issue that cuts across tech and other industries throughout America. “The country overall has become increasingly short-sighted,” she said. “We don’t think about long term prosperity, but about short term greed and that’s led to an innovation deficit.”

Her hope is that the sudden, deep impact of the economic downturn will lead to new thinking, innovation and strategies that are built to last. “We don’t want another bubble. Even if we have slower growth, we need sustainability,”
she said.

She said government has a major role to play in funding basic research as well as education. “There’s no question we’re not educating our kids for the 21st century,” she said.

Estrin, a former chief technology officer at Cisco (NASDAQ: CSCO), is currently CEO of JLabs and a board member of Walt Disney and Federal Express. She said the current credit and liquidity crisis is holding back entrepreneurs who can’t get adequate funding for their startups.

“We have no IPOs for small companies and until we solve that problem, we can’t depend on entrepreneurs to do what they do so well.”

Do you have what it takes?

But she also spread the blame, noting companies small and large as well as venture capitalists have been reluctant to take risks.

“You have to plant a lot of seeds to get one thing successful and you don’t know which one it’s going to be,” she said. “Overall we’ve lost our courage to take risks and there are no incentives.”

Moderator Michael Mandel, chief economist at BusinessWeek, suggested more risk taking might not be the best strategy for many companies and investors. “We saw in biotech people took risks that didn’t take off and the same with the dotcoms in the late 1990s,” he said. He questioned whether a lot of companies have had “risk taking beaten out of them.”

But Estrin said failure is an inherent part of innovation. “There is a difference between risk and intelligent risk,” she said. “If you look at the dotcom companies and the recent financial moves, that was gambling, not intelligent risk taking.”

The answers are out there

Rashid said even with budget cutbacks, it’s not necessarily a bad time to be in research. “Hard times are when people need you the most,” he said. “Now might be a good time to sell those ideas you’ve already done most of the work on and get them out the door.”

Cheng said information technology has been evolving at such a rapid clip, it’s probably a good thing the economy is forcing a slow down. “The Chinese character for crisis also includes opportunity.”

She also suggested companies would be well-advised to follow IBM’s strategy of having well-balanced investments in both short- and long-term research.

Rashid mentioned “huge opportunities to renovate the nation’s health care system” and embellished his point with a personal anecdote about being rushed to an emergency room after falling from a horse. “If you didn’t have a heart attack before you get there, you probably would after you arrive. I was there five hours before someone finally gave me a CAT scan to make sure I was okay. I think they just lost me,” he said.

Sue Siegel, a partner with investment firm Mohr Davidow Ventures, said the health care industry is being held back by too many regulatory hurdles to bringing innovative products to market. “And we don’t incent for sickness and sick care; we do not incent for prevention. There needs to be a fundamental shift to incent for health span and life span,” she said.

On the larger tech front, Rashid said recent investments in computing infrastructure are priming the way to new innovative services.

“Companies like Amazon, Google and Microsoft have the most massive datacenters with the most computation you can imagine,” he said. “And businesses, whether it’s medical, environmental or whatever the problem is, now have the ability to put sensors out in the environment and create new data driven businesses.

“I think a lot of the new businesses from this will be successful and that’s where the climb out will be,” Rashid added.

Cheng said she thinks companies are essentially being forced to innovate. “Things couldn’t be any worse than they are today; that forces people to focus,” she said. “I’m very optimistic.”

This article was first published on InternetNews.com.