By Eilif Trondsen, Ph.D., Chair, Special Interest Group on Entrepreneurship and Learning, Silicon Vikings; and Director, Strategic Business Insights
The rising economic position and performance of China, the growth and dramatic impact of new technologies on most industries, and new entrepreneurial hot spots around the world are just a few of many developments that are now shaping the global as well as regional and local economies.
Over the long run these and other developments may create regional innovation ecosystems that may rival that of Silicon Valley, especially if policy makers and ecosystem players in Silicon Valley are not successful in addressing some of the challenges—especially on the social front (including housing, transportation and growing disparity of income and wealth)—that could weaken and undermine the economic vitality of the region. (1)
A recent report, Silicon Valley Competitiveness and Innovation Project – 2015 (2) provides a data-rich description of Silicon Valley and its innovation ecosystem, and also identifies and analyzes the major challenges facing Silicon Valley. The report provides a comparative statistical analysis that shows how Silicon Valley ranks compared to Seattle, Southern California, Austin, Boston and New York—referring to key factors that drive the innovation ecosystems of these regions (including talent, capital, R&D, various innovation process elements, business competitiveness, quality of life, opportunity and jobs). The result of this comparative analysis makes clear why Silicon Valley has become a popular location for what I refer to as SV-IOs.
As far as I know, relatively little published literature currently exists on SV-IOs, and no generally accepted definition of SV-IOs currently exists. From my perspective, the innovation outposts should not be narrowly defined, as they can take many forms and shapes depending on the needs of the (mostly large) companies that set up these SV-IOs. As the importance of, and interest in, innovation has increased significantly over the last decade or more, including inside large organizations that see innovation (and especially so-called “open innovation”) as an imperative for future growth, SV-IOs have grown rapidly in numbers—for reasons that will hopefully become clear as you read this article. (The box below provides some of my “Definitional Perspectives” on SV-IOs.).As I see them, SV-IOs are created by large companies that hope to take advantage of, and benefit from, being part of the Silicon Valley dynamic ecosystem.
Brad Power, in an article in Harvard Business Review, put it this way: “How can you build your organization’s ability to sense and respond to rapid improvements in technology? Many large, successful companies are creating offices in California’s Silicon Valley to spot big new trends and learn how they can transform their organization in ways they couldn’t otherwise imagine. It’s no longer good enough to wait for change to come to your industry; you need to be out there where it’s happening. And a lot is happening in Silicon Valley.” (3) In my view, SV-IOs focus not only on technology but on many other emerging trends and developments that can have important impacts on a company’s future innovation strategy and activities.
Silicon Valley: Innovation Cauldron
It is beyond the scope of this short paper to provide an in-depth description and analysis of the elements and dynamics of the Silicon Valley innovation ecosystem. In a previous paper (4), I included a simplistic graphic showing some of the key elements of this ecosystem, and numerous books and articles have been published that explore this unique and world-renowned ecosystem. (If you are interested in ecosystems, you may also want to read the forthcoming book by Robert Kim Wilson and Del Langdon entrepreneurial ecosystems) (5).
The fact that Silicon Valley has retained its prominence as a world-class innovation ecosystem for so many years, and has successfully made the transition as technology, economics and policies (at federal, state and local level) have changed, is also one reason why large and small companies keep coming to Silicon Valley—including setting up SV-IOs—despite frequent forecasts that the Valley would be eclipsed by some other regional powerhouse.
The recent CoEcon report on Silicon Valley mentioned earlier refers to the following five “waves” that Silicon Valley have gone through—each of which has contributed important elements to the depth of our current innovation ecosystem. The report graphic that describes the five waves make clear that Silicon Valley has evolved (slowly) over a long time, and thus is not likely to be recreated quickly by other regions. The waves are: (1) Defense (1950s-1978); (2) Integrated Circuits (1979-1986); (3) Personal Computers (1987-1996); (4) Internet (1997-2005); and (5) Social Media (2006-2013).
Each of these waves have helped shape what we now have, including the key factors that drive the region’s innovation ecosystems. It is the depth and continuing vitality and dynamism of this ecosystem that will be the foundation for the next wave, and all of this is what helps attract large and small firms to the Valley, and for large firms to establish SV-IOs. These are established to address different needs (some of which were identified in the box above), but part of the hope of the firms creating a SV-IO is that being present in, and part of, the Silicon Valley ecosystem will help stimulate and enhance their own corporate innovation systems and thereby boost revenue growth.
What are some of the likely benefits that SV-IOs can gain from being part of the Silicon Valley ecosystem as it continues to evolve? Some of them are likely to include the following:
Close up monitoring of dynamic startup scene. Growing numbers of startups across a range of technologies and industries emerge every year in Silicon Valley (and the quarterly Venture Capital Funding Survey [http://www.mercurynews.com/venture-capital-survey/] of San Jose Mercury news provides a detailed account of who gets what funding from whom). Many are nurtured in numerous incubators and accelerators that have appeared in the Valley over the years (see below for a small sample of these organizations). Some are “real estate plays” but the best offer startups experienced mentoring and coaching from former serial entrepreneurs who can help guide early stage companies through the treacherous shoals of company building. Some SV-IOs are located in some of these accelerators (such as Rocketspace), with a close up view of potential acquisition candidates or collaboration partners, or just as a way to gain insights into new technology and business trends in the Valley
- Experimentation with emerging technology. Large companies often find it hard to experiment on a small scale and to accept that most technology or business experiments will fail. Strong acceptance and tolerance of failure is one of the key characteristics of Silicon Valley and being part of the Valley gives larger companies a great opportunity to gain better appreciation of risk and greater acceptance of “failure culture” while also learning how to leverage failures into future success. The different risk and operating culture of startups and larger corporations is also a major challenge to successfully integrating startups that large corporations often acquire. Low tolerance of failure is particularly common in many countries and national cultures, and is a frequent theme in presentations given by speakers from many different European countries at the Stanford Engineering's European Innovation & Entrepreneurship Thought Leaders seminar series [http://www.europeanentrepreneursatstanford.com/]. But low tolerance of failure is also very common throughout Asia, and has been a major barrier to building an entrepreneurial culture in most Asian countries for many years (but this situation is now improving, but slowly, in Japan and other Asian countries).
- Design of new business models. Silicon Valley is often thought of in terms of emerging technology, but the region is more about building companies, and testing out new business models, than just creating or inventing new technology. Smart technologists and inventors are found anywhere in the world, but building companies and testing new business models require many different elements, including risk capital from seed stage to later funding rounds, and access to a variety of talent that can help build products, market and distribute them and scale the operation necessary for global success. Silicon Valley is blessed with the resources needed to scale companies, one of the reasons why many early stage companies, such as Facebook, come to Silicon Valley when they are ready to take on the world, and need the risk capital and other resources to make this happen.
- Transition from big science to tech commercialization. Silicon Valley is blessed with world-class universities, research institutes as well as large tech companies (like Google with its Google X operation, for instance) that are also working on “big science” problems and other “big social challenges”. And even relatively new institutions like Singularity University, whose moniker says “Solving Humanity’s Grand Challenges” [http://singularityu.org/], are focused on big and important challenges demanding often radical and disruptive solutions. Silicon Valley’s culture and diverse ecosystem has probably more of the ingredients that are required to successfully tackle these types of challenges than most other regions in the world. And SV-IOs will have a front row seat to monitor and study how business solutions and paths for tech commercialization are found to enable viable, long term approaches to these types of challenges. But declining funding of public universities—such as University of California, Berkeley, and many state universities—over many years is leading many to be very concerned about the scope and quality of research in these universities to enable next generation technologies that can be exploited by Silicon Valley companies.
- “Deep and Dense” ecosystem facilitates partnering. As the Silicon Valley ecosystem keeps growing and gaining depth and breadth, a result of leveraging key resources and talent from each of the earlier phases of the Valley’s evolution, SV-IOs can benefit from a growing variety of potential partners, large or small, in future business ventures. As growing numbers of foreign companies locate outposts in Silicon Valley, companies looking for partners to expand into foreign markets, will be better able to find “like-minded potential partners” in Silicon Valley. For instance, rather than going to China to seek partners for potential tech ventures in the huge and complex Chinese market, why not explore linking up with the growing number Chinese companies that have recently been setting up operations in Silicon Valley, and that have staff who are likely more on the same “wavelength” with potential foreign partners than their colleagues in China, when it comes to exploring potential partnerships relating to technology or market opportunities.
- World-class software talent and expertise. Marc Andreessen, in his August, 2011 article “Why Software Is Eating the world” in Wall Street Journal, clearly identified a very important “paradigm shift,” which he described as follows: “…we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.” It is hard to argue with either the premise or the conclusion of Andreessen’s argument, as software has increasingly become the key innovation factor and driver of the US and other economies—even though today, one of the most interesting future developments is how new and innovative integrations of software and hardware (such as in areas like Internet of Things, drones, 3D printing, and others) may shape the future of Silicon Valley and other innovative regions in the United States. There are growing signs that hardware-based companies are now returning to Silicon Valley, to help build “next generation, advanced manufacturing,” which will combine with Silicon Valley’s world-class software expertise. The region has long had world-class programmers and software engineers who have been quick to take advantage of each new wave of thinking about software and new programming languages. New software upgrades now provide increasing agility and flexibility to hardware that quickly gains new and improved capability as customers just download new versions of the underlying software. This is true of Tesla’s cars as it is for GE’s sophisticated jet engines, and lots of other products. The box below describes some of the characteristics of Silicon Valley’s software sector.
- Unmatched Risk Capital for New Ventures. According to data in the report on Silicon Valley Competitiveness and Innovation Project – 2015, “very early stage funding” in Silicon Valley in 2014 (through November, 2014) was $3.1 Billion, compared to $1.22 Billion in New York (which raised the second largest amount). Over the years, Silicon Valley companies have captured around one-third of all venture funding (and in Q3 of 2013, Bay Area firms gained 46% of all US VC funding, according to a report by San Jose Mercury News). Silicon Valley has for years been the center of venture capital, and in 2014, VCs here raised $20 billion, double the amount in 2013 and the highest in five years, according to a January, 2015 report by San Jose Mercury News. The amount of risk capital available in Silicon Valley has also resulted in an influx of startups from overseas, including the Nordic region, as early-stage firms come here to find the funding, or the size of funding, they cannot find in their home markets. This inflow of innovative startups provides a growing list of attractive potential investments, or partnerships, for SV-IOs which increasingly look for such firms to become “innovation partners” as an element in their open innovation strategy. But the best startups are right now courted by a growing number of investors (either traditional VCs or corporate VCs), and with growing willingness to write large checks, so competition for the best deals is growing.
A Brief Overview of the SV-IOs Landscape
It is beyond the scope of this article to undertake an in-depth analysis of the SV-IO landscape—which some analysts think consist of over 200 multinational companies that have come to Silicon Valley over the years—but rather to show some of the players and what they do, in order to illustrate the variety and depth of the SV-IO landscape. Future articles may focus on particular organizations, describing them and evaluating in more depth what they have done, and how successful they have been.
Below, I provide very brief summary descriptions of 9 SV-IOs of US companies, 9 SV-IOs of European companies, and 8 SV-IOs of Asian companies. To avoid making the article too long, I have put all the mini-case stuidies in a separate article that you can find here. The mini-case studies contain some of the most interesting characteristics of the SV-IOs that I have identified from review of various publications in Silicon Valley and elsewhere, as well as from information provided by friends who know much about European and Asian companies operating in the region, for instance.
Numerous companies have come to Silicon Valley from all over the US over the years, setting up SV-IOs of various sorts, including these:
- PARC. Struggled early to bring disruptive technologies into the "mother ship" of Xerox, but is today a highly effective research organization serving large number of clients around the world.
- GE. This industrial giant has built up a major presence in Silicon Valley (broadly defined here to include the east Bay) and the company is focusing on building world-class software and integrating it into most of their products and services.
- GM. Like other auto companies that have helped create an emerging transportation ecosystem in Silicon Valley, GM is looking for and developing software-based products for future GM products and searching for appropriate investments and partnerships.
- Target. This and other US retailers have set up shop in Silicon Valley to figure out how to use emerging technologies to tap into the new ways that consumers shop (increasingly online), and to find new analytical tools to predict future consumer behavior.
- ATT. The large communications company has established an ATT Foundry in Palo Alto as a way to accelerate the cycle time for developing new products and services, often in collaboration with corporate or startup partners.
- Wal-Mart. The company’s innovation center and “skunk works”, Wal-Mart Labs, has had a Silicon Valley presence for over a decade and in recent years has expanded its efforts, including acquiring many Silicon Valley startups in technology areas of interest.
- Ford. Ford Silicon Valley Lab was set up in 2013, focusing on big data and open-source programming projects. Recently it increased its presence by opening the Research and Innovation Center Palo Alto to accelerate its development of technologies and experiments.
- Amazon. Amazon is greatly expanding its investment in Lab126, its SV R&D center, and expects to have nearly 4,000 employees within 5 years. One of its reported focus areas is, like many others, "Internet of things."
- Anheuser-Busch. The large beverage company has moved its entire digital team to Silicon Valley to be immersed in emerging technology and in the atmosphere of innovation and risk taking, hoping to gain new insights into mobile and social media especially.
- Others. Many other US companies have also set up SV-IOs of some sort, including Sears, American Eagle, and Home Depot.
A number of large European companies, like SAP, have been in Silicon Valley for many years (13), recognizing early that they could benefit in various ways from having a more established presence here. Others, such as Pearson, are more recent arrivals that see a need to monitor technology and business developments here, and have concluded they can best to this by having at least a few people stationed here. Below are brief descriptions of some of the European outposts in Silicon Valley.
- SAP. The company has operated in Silicon Valley since 1993 and today has ca. 2,500 employees here, runs a range of programs focused on emerging technology and innovative startups, and engages extensively with the Valley's innovation ecosystem.
- Swisscom. The company's outpost has gained valuable lessons over the years in how to best serve its constituencies at home and serves them through tech scouting and helping accelerate startups that Swisscom takes strong interest in and often brings over from Europe.
- EIT ICT Lab. This newcomer to the Bay Area is now in the process of establishing its base in Rocketspace and hopes to build strong strategic partnerships with leading industry and academic players in Silicon Valley, and connect them better to its European research operations.
- Ericsson. The telco network giant has long seen its Silicon Valley presence as key to building up Internet Protocol-related technology competence and this commitment has recently expanded as the company is now building a major campus in San Jose (not far from the new Samsung campus).
- Nokia. The once dominant Finnish mobile player has been present in Silicon Valley since 2006 and despite shedding its mobile operations to Microsoft, Nokia continues to maintain its SV-IO, focusing on innovative solutions for big data analytics and telco cloud, etc.
- Siemens. Siemens SV-IO leverages its Tech-to-Business, Siemens Venture Capital, and Corporate Technology units to find, fund and forge the breakthroughs that will harness the power of data to make things real--with strong focus on "The Web of Things.”
- L’Atelier. BNP Paribas Technology Innovation Center—known as L’Atelier BNP Paribas—is a media and consulting company specialized in tracking innovation for the large French bank and help identify and bring relevant technologies to the bank and its clients.
- Vodafone. While recently consolidating its R&D operations in Vodafone's xone hub in London, the company retains its venture capital arm here, and Vodafone Global Enterprise runs a very active innovation center in Silicon Valley, linked to Vodafone's global operations.
- Pearson. The large education tech company has a small outpost in Rocketspace in SF and the accelerator--especially through its corporate innovation program--is a member of Pearson Catalyst for Education program, working with edtech startups in Silicon Valley and beyond.
- Others. Other European companies with SV-IOs include Philips Lumileds, Volvo (only Venture operation), Orange, Deutsche Telecom, BT, VW, BMW (set up BMW Group Technology Office in June 1998), British Airways, Lego, Bosch (Bosch Research and Technology Center North America established in 1999), Daimler (Mercedes-Benz Research & Development North America Inc. set up in Palo Alto in 1995 and moved to Sunnyvale in 2013), and Sennheiser Electronic Corporation.
According to my former SRI colleague, Karen Yorke (now Senior Business Consultant at Cardinal Consulting International Inc., and working extensively with Japanese companies), “Japanese companies have had listening posts in the SF Bay Area for a long time - the 70's on. There was a pull back in the 80's through the early 90's when the Japanese economy weakened and, following that, when Japanese firms started to focus heavily on the domestic market. Around the time of the first dot com boom (mid-late 90's), they began to re-invest in what could now be called "innovation posts" in that they were looking to make investments in as well as learn from Internet tech companies (mostly through corporate venturing groups which invested in venture funds and worked with start ups in incubation labs). A number of companies stayed through the dot com bust, the next boom, and its follow-on bust (in 2008) and are still here today. A number of companies also left somewhere in the 2000-2010 time-frame because of all the volatility (although some may have retained a small listening post). Around 2010-2012 another new wave of companies (some of them the old establishment Japanese firms [including Japanese auto companies—as shown in the figure below], some were new mid size companies, and a few small firms) starting setting up shop in the SF Bay Area.” But other Asian firms, including from Taiwan, Korea and more recently, China, have also set up SV-IOs and Silicon Valley today is well represented with Asian firms, and Asian students (especially from China) have come in growing numbers into Bay Area universities, especially Stanford and UC Berkeley, creating a talent pool for next-generation SV-IOs from Asia.
- Honda. Honda Silicon Valley Lab opened in May 2011 and looks into strategic alliances with Bay Area companies and has a prototype development team that builds concepts for next-generation information technology.
- Konica Minolta. In 2014, the company established a new Business Innovation Center (BIC) to help transform the company's culture into a more agile and risk-taking operation and to expand beyond products into customer-focused and innovative services.
- Panasonic. Panasonic R&D Center Silicon Valley and its venture capital unit are located in Cupertino and the company is pursuing strategic partnerships (including with Tesla) and investments in key business and technology area of the company. Samsung. Although Samsung Electronics--one of the major subsidiaries of the Samsung conglomerate--has long had a Silicon Valley presence, the company is now greatly expanding its footprint with major investments and operations in the area
- Fujitsu. Fujitsu Laboratories of America in Silicon Valley was established in 1993, to extend the global reach of Fujitsu R&D and in2012, FUJITSU TEN Corp. of America opened a new R&D facility, referred to as Silicon Valley Creative Square (SCS), in Sunnyvale
- Samsung. Although Samsung Electronics--one of the major subsidiaries of the Samsung conglomerate--has long had a Silicon Valley presence, the company is now greatly expanding its footprint with major investments and operations in the area
- Baidu. The "Google of China," with market cap of around $75 billion set up Baidu USA in Silicon Valley in 2014, consisting of Baidu Research (focusing on advanced computer science research), and a unit focusing on Internet-related business opportunities
- Alibaba. China's leading eCommerce company is now in executing an ambitious strategy in Silicon Valley and in recent months has launched a data center and cloud development center, created an online market (11 Main) and made major startup investments.
- Others. Other Asian firms with SV-IOs include the following: NTT, NEC, Toshiba (Toshiba America Research), Sumitomo Electric (in addition, various companies in the Sumitomo group are located in the SF Bay Area, i.e. Presidio Venture Partners), Hitachi, KDDI, Konica Minolta, FujiXerox (which established its highly regarded research facility in Palo Alto, near PARC in 1995), NTT Data and Softbank (the company had planned to build up a major presence with over 1,000 employees in Silicon Valley, but the failed 2014 bid of its Sprint subsidiary to acquire T-Mobile resulted in Softbank pulling back from its ambitious Silicon Valley plans).
Key Trends and Future Perspectives
No one knows what the “next big thing” (in Silicon Valley, or more generally) will be, either in consumer or industrial applications. Some think Internet-of-Things/Industrial Internet/Web-of-Everything (different terms for mostly the same thing) will be a big area of future opportunity in Silicon Valley. Other candidates include different areas related to big data (which just about everyone in Silicon Valley would claim to be working on, either in the B2C or B2B front), drones, robotics, mobile medical devices or applications, and new forms of advanced manufacturing that integrates advanced hardware with smart software that will bring a renaissance of US manufacturing. Or the next big thing could be something no one had expected.
But whatever the next big thing will be, it is likely that Silicon Valley’s strength in software that has been a key driver powering the past and current ecosystems of Silicon Valley will provide, or enable, many of the component technologies and competencies that will help companies succeed in whatever emerges as the next big thing. And the agility and flexibility of both companies and Silicon Valley talent base will perhaps be more important for future success of SV-IOs than particular technologies that now exist here.
Some of the trends that may shape SV-IO characteristics and how SV-IOs will function, include:
- SV-IOs aligning with current and emerging industry clusters. Especially over the last decade or so, but in some cases going back a couple of decades or so (as seen in some of the mini-case studies above), companies looking for new technology, leading edge talent and expertise in emerging tech and industry sectors, as well as risk capital to fund ventures in Internet technologies and social media, have set up SV-IOs. As noted by Håkan Eriksson, Group CTO of Ericsson, President of Ericsson Silicon Valley, in an interview in San Jose Mercury News in August, 2010, “the IP-centered competence in the world is very much here in Silicon Valley….If you look at R&D, in the U.S., our R&D is in the Valley.” (20) More recently, the center of gravity in mobile phone industry has centered on Silicon Valley, and according to Mark Zawacki of 650Labs, there are now an astounding 25 mobile operators with a permanent strategic presence in Silicon Valley, but he also notes that “But the 25 mobile operators in the Valley are only part of the story. The real story is the 400+ companies that comprise the Silicon Valley mobile industry cluster. It’s a formidable mobile ecosystem, not only in its size and breadth of expertise, but for the fact how mobile is at the center of transforming (disrupting?) so many industries worldwide; financial services, retail, automotive/transportation, media & entertainment, education, healthcare and many others.” (21) Over the last few years, growing number of players that expect to disrupt the transportation sector are now building a formidable “next-generation transportation ecosystem,” which explains the information in the earlier figure on auto related companies now having operations in Silicon Valley.
- SV-IOs aligning with accelerators and incubators. Particularly for those IOs that are here to take advantage of “open innovation” and want to closely monitor, interact with and perhaps acquire innovative startups, having some relationship with leading incubators and accelerators in Silicon Valley may be a smart strategy, and something many SV-IOs have already started embracing. Collaborating with specifically designed accelerator programs in certain areas, such as “Internet-of-Things” for instance (see below for what Plug and Play is doing) is a way for SV-IOs to work closely with many startups in a targeted area and to compress the time needed to test out concepts for new products or services (this is also what ATT Foundry is doing in partnership with various firms, including Ericsson). Some examples of recent developments at just a few of the accelerators in Silicon Valley include:
- Plug and Play. Iranian immigrant Saeed Amidi created one of the first incubators in Silicon Valley—and refers to the main campus in Mountain View as “Silicon Valley in a Box.” But Amidi has now built a network of Plug and Play facilities around the US and the world, but has also evolved the incubators more towards business acceleration, working with both startups and corporations. One of the ways in which they now work with larger corporations in the retail industry, including Pepsi, P&G, Lowes, Clorox and Hershey is through its Brand and Retail Center of Innovation. Others, in this series of accelerators, in addition it its twice a year Startup Camp programs, include media/mobile, Internet-of- Things (involving State Farm and Robert Bosch Venture Capital GmbH, for instance), and Bitcoin—and according to Plug and Play, in 2014 a total of 140 companies went through these accelerator programs designed for corporate clients.
- Rocketspace. According to Duncan Logan, the CEO and Founder of Rocketspace—a San Francisco accelerator that was launched in 2011 and now houses a large number of startups from around the world—many large companies make regular visits to his accelerator as part of its corporate matchmaking program. Some companies, such as American Airlines, Microsoft and Pearson have set up permanent innovation or scouting teams at Rocketspace, and Logan has been surprised at how the accelerator has become “a honey pot” for larger corporations. According to a Wall Street Journal report, Logan noted that RocketSpace “…signs up two to three large companies per month in its [corporate innovation] program and helps connect large companies such as Pearson to the startups that can help them solve innovation challenges.” (22)
- GSVLabs. This Redwood City-based accelerator—until recently known as NestGSV (launched in October 2012 as an “ecobator” that combines an ecosystem and an incubator, by former Plug and play COO Kayvan Baroumand)—has around 80 startups alongside corporations, international agencies, mentors, universities, investors, thought leaders, and non-profits, in an effort to build a global ecosystem. The accelerator has been expanding its innovation services for corporations, and they now include ideathons, hackathons, accelerator labs (“goal-oriented, custom-built program that aims to help the corporate partners evaluate the potential of innovative solutions, based on the defined challenge tracks”—according to their website), corporate development, pitch competition hosting, and workshops. Corporate sponsors that use GSVLabs innovation services include CableLabs, Toyota ITC, Tata Communications, Amazon Web Services, and First Republic Bank.
- Align with R&D programs in Bay Area research institutes and universities. The SF Bay Area is blessed with strong research organizations—including Sandia National Lab, Lawrence Livermore National Lab, PARC, FX-PAL, SRI International, and numerous world-class labs at Stanford University, UC Berkeley and other local universities. All of these excel at market-driven technology commercialization and are used to working with companies to find risk capital and bring innovations to market. SV-IOs that truly seek disruptive innovations will build strong connections and relationships with world-class researchers in the leading Silicon Valley, and the larger Bay Area, research organizations. As a result of the University of California in September 2014 revealing a plan to set up an investment pool of $250 million to support innovations coming from student and faculty research at its campuses—making it one of the largest of its kind, targeting work done at the university's 10 campuses, five medical centers and three national laboratories--SV-IOs should see a growing number of technologies and startups coming out of UC Berkeley and other parts of the UC system.
Building Successful SV-IOs
Interest in corporate innovation has seen dramatic growth over at least the last decade and so, and some of this has been driven by growing number of companies embracing “open innovation,” partly as a result of the work of Professor Henry Chesborough at UC Berkeley (23). But building effective internal innovation processes and systems is far from trivial, as even well-known Silicon Valley tech companies like HP, long known as an innovation powerhouse, have found out over the last decade or so.
And being far removed from the “mother ship” can bring additional challenges, as strong connections and deep understanding of the needs of the organization and its strategies is crucial in working on the right things and doing things right in the SV-IOs. Swisscom’s VP of innovation and one of the senior leaders of Swisscom’s SV-IO, Ursula Oesterle, described how she and her colleagues changed their way of operating, to be more successful and to better meet the needs of their colleagues back in Switzerland. Oesterle described the evolving process by using “…the metaphor of throwing and catching a ball between her team in Silicon Valley and headquarters. To make sure the various headquarter divisions in Bern can catch and use the ideas they “throw,” they’ve developed a give-and-take synching process. The process has gone through an evolution: at first the Silicon Valley outpost would pitch opportunities to corporate, hoping that someone would catch the ‘ball’ and run with it. This led to corporate providing a ‘shopping list’ allowing the Silicon Valley outpost to be much more targeted in scouting and screening — in this stage the outpost was again pitching opportunities to corporate, but there was a catcher waiting for the ball. Now, there is something closer to real-time exchange, deeply connecting continuous pitching and catching back and forth.” (24)
The very high failure rate facing entrepreneurs is well-known, and developing a high-risk entrepreneurial environments in large corporations—what many SV-IOs attempt to do—is a tough challenge for corporations seeking to become more innovative. And as the case of Xerox PARC illustrated, even when disruptive innovations with potentially dramatic revenue opportunities came out of PARC in Silicon Valley, the “mother ship” is often very challenged in integrating the new technologies or business ideas into its operations without allowing the normal “antibodies of its systems” kill the innovation in its infancy. This challenge is what could be referred to as an “impedance mismatch” between the SV-IO (or the new ideas and innovations coming from the SV-IO) and the other parts of the corporation (see box below)
SV-IOs should see themselves as one of many dynamic and interacting elements in Silicon Valley’s complex innovation ecosystem, which also includes numerous players (individuals as well as organizations, large and small) that can help SV-IOs in the various activities and phases of the work they do. Many of the corporate innovation experts, such as Paul Campbell and Mark Zawacki (and his colleagues) at 650Labs, Soren Kaplan of InnovationPoint, and many others who provide similar services, have worked with numerous corporations building internal innovation programs and processes, often including entities like SV-IOs.
Often a critical element of building robust innovation systems is to create an internal environment in corporations that enables open and honest examination of future trends and developments, and especially for “alternative futures,” as no one can (accurately) predict the future. Strategic Business Insights, a spin-out from SRI International (formerly Stanford Research Institute) has run a Scan program for its clients since 1958, identifying “early signals of change” by applying pattern recognition across a wide range of data points about current developments in many industries and sectors. Some of the SBI clients often combine such scanning activities with use of scenario methodologies to explore alternative paths for the future. This not only gives the senior management team of the client a common vocabulary to talk about the future but the scenarios also help clients build business strategies that are context specific, i.e. leveraging the corporation’s resources and competencies to the specifics of particular scenarios. Small or large companies that want to excel at innovation need to anticipate future developments and understand evolving market dynamics (including evolving consumer behavior and needs), and learn to “skate to where the puck is going to be, not where it has been” (in the words of Wayne Gretzky, one of the all time greatest hockey players). Having processes in place that help talk about and to examine future trends should therefore be one of the tools in the toolkit of all companies that take innovation seriously.
Senior management of large companies that don’t currently have any form of SV-IO at the present, should consider the following action steps:
- Set up a small task force to explore whether or not a SV-IO could bring significant value to the organization
- Such a task force may want to take a more indepth look at the most relevant and interesting SV-IOs that I have described in this article, or perhaps others that I have not covered
- Another part of the work of such a task force would be to spend some time in Silicon Valley, talking to people running some of the most interesting SV-IOs as well as incubators and accelerators, including those that have set up corporate innovation services.
References & Resources
- Silicon Valley Fever of a Smart Future? Doug Henton, March 11, 2015
- Silicon Valley Competitiveness and Innovation Project – 2015, Authored by CoEcon, for theSilicon ValleyLeadership Group and Silicon Valley Community Foundation, January 2015
- Leveraging Silicon Valley--From Wherever You Are," Brad Power, Harvard Business Review, October 28, 2013
- "So, You are Going to Silicon Valley. Are You Ready?" Eilif Trondsen, January 2015
- They will be Giants--21st Century Entrepreneurs and the Purpose-Driven Business Ecosystems; by Robert Kim Wilson and Del Langdon (Forthcoming)
- "Guide to Silicon Valley's Auto Corridor"; Automotive News, June 16, 2014
- "A Sneak Peek Inside Four Silicon Valley Tech Labs"; PopularMechanics.com
- Target Corp. eyes Silicon Valley with innovation center in San Francisco; August 5, 2913; http://www.startribune.com/business/214851461.html
- ATT Foundry; http://about.att.com/innovation/foundry
- “Retailers stock up on innovation,” Renee, Frojo, San Francisco Business Times; October 11, 2013; http://www.bizjournals.com/sanfrancisco/print-edition/2013/10/11/retailers-stock-up-on-innovation.html?page=all
- “Amazon's Lab126 expands in Silicon Valley,: Reuters, September 25, 2014; http://www.reuters.com/article/2012/09/20/us-amazon-lab-idUSBRE88J19520120920
- “Anheuser-Busch Heads to Silicon Valley”, by Mark Walsh, May 22, 2013; http://www.mediapost.com/publications/article/200882/anheuser-busch-heads-to-silicon-valley.html
- Europe and the Bay Area: Investing in Each Other; Bay Area Economic Council Economic Institute; 2014
- “Software giant SAP innovates with an infusion Silicon Valley startup culture”, by Heather Somerville, http://www.mercurynews.com/ci_22962850/software-giant-sap-innovates-an-infusion-silicon-valley
- “Ericsson to grow Silicon Valley presence with New Campus,” May 28, 2014; http://www.ericsson.com/news/1789217
- “Nokia finds research edge in Silicon Valley;” by Scott Duke Harris, San Jose Mercury News; http://www.mercurynews.com/ci_7554361?source=most_emailed&nclick_check=1
- Linkedin Profile of Frédéric Tardy
- Stanford SystemX seeks to make information technologies even more pervasive; Stanford Report, March 9, 2015; http://news.stanford.edu/news/2015/march/systemx-new-alliance-030915.html
- “Konica Minolta Aims to Invent the Future in Silicon Valley and Around the World,” by Katherine O’Brien, Senior Editor, American Printer; http://outputlinks.com/kob-Ekta-Sahasi_070814_ol_konica-minolta
- “Mercury News interview: Hakan Eriksson, president of Ericsson Silicon Valley”, by Troy Wolverton, August 6, 2010, http://www.mercurynews.com/breaking-news/ci_15697717
- Spotlight: The Silicon Valley Mobile Industry Cluster; by Mark Zawacki, Founder, 650Labs; http://650labs.com/spotlight-the-silicon-valley-mobile-industry-cluster/#more-382
- “A Place for Startups and Corporations to Work Side by Side;” Wall Street Journal, September 3, 2013; http://blogs.wsj.com/cio/2013/09/03/a-place-for-startups-and-corporations-to-work-side-by-side/
- Open Innovation Bibliography; http://www.openinnovation.net/Research/Bibliography.html
- “Leveraging Silicon Valley — From Wherever You Are;” by Brad Power, October 28, 2013, Harvard Business Review; https://hbr.org/2013/10/leveraging-silicon-valley-from-wherever-you-are/
Eilif—a transplanted Norwegian who has spent his whole professional life in Silicon Valley—has led and participated in a number of syndicated research programs and numerous consulting projects during his 35 years at SRI International (formerly Stanford Research Institute) and Strategic Business Insights (a spin-out from SRI, located on the Menlo Park campus of SRI). He has also been Adjunct Professor of Economics at a number of Bay Area universities. Most of his work has focused on eCommerce, Learning, Innovation, and Virtual Technologies, and in recent years much of his work has focused on the Nordic region, especially Finland and Norway, including projects for Tekes and the Norwegian Research Council, and two projects funded by Nordic Innovation. He has been a Board member of Silicon Vikings for the last 5 years, and have been the Chair of the Special Interest Group on Entrepreneurship and Learning since its beginning.