Silicon Valley Innovation Outposts: Update


Since new Silicon Valley Innovation Outposts (SVIOs) will likely appear in Silicon Valley from time to time, while some existing SVIOs will either be closed down or change in form or function (to better meet the parent company’s (new) goals and align with current strategies), my plan has been, and continues to be, to write updates when I have seen enough interesting changes in the SVIO landscape to warrant an update. I therefore expect this update to be only the first in a series of similar pieces that I will write now and then, depending on what I see happening around here.

Before I cover three new SVIOs that have come to my attention since I published the previous two articles, I thought I would make a few brief comments on a recent Wall Street Journal articles (“At Innovation Labs, Playing With the Technology is the Easy Part;” June 17, 2015 and “Corporate Giants Carefully Turn Silicon Valley Prototypes Into Products,” June 18):

  • Having the right Mindset in Leadership. In the June 18 article, Steve Hill, vice chair of strategic investments and innovation at KPMG noted that “You don’t put a lab in place if you don’t have a board and management team and a mindset in leadership willing to challenge the status quo.” I couldn’t agree more, and companies that don’t have the right mindset in its leadership should not waste money and time setting up a SVIO and will likely fail to benefit if they go ahead to set one up anyway. I hope that the three organizations I refer to below, that are now building new SVIOs, have the right mindset to succeed with what they plan to build here.

  • Successful assimilation from SVIO to organization as a whole. The right mindset of the top leaders is a “necessary but not sufficient” condition for SVIO success. Many other challenges can undermine success, some of which were discussed in the previous articles, and the evolution of Swisscom’s SVIO illustrates how “lessons learned along the way” can help reshape a SVIO so that it better meets the needs of the “mother ship” and thus reduce the strength of the antibodies that may threaten to kill anything new coming in from the SVIO, especially if it is “disruptive” and undermines some of the organization’s current operations and jobs.

Recent Developments

Below, I provide relatively brief descriptions and some comments and observations about three new SVIOs—or, more correctly, plans that three different organizations have about setting up SVIOs. There may well be other new ones that have not yet appeared on my radar (if you know of any, please feel free to send me a note to let me know: eilif.trondsen@siliconvikings.com), but the three I discuss below are interesting to me as they illustrate how very different organizations—in terms of nationality (of their home base) and industry—but they have a common objective: Connect (perhaps broadly, as well as in focused (technology) areas of interest) to what is going on in Silicon Valley as well as to the players (“natives” or not) that are already here.

Wipro: Creating Innovation Lab

Based on an article (“Wipro to open innovation lab in Silicon Valley by December-end”) in Mint, one of the major business daily newspapers in India, and communications I have had with the article author, Varun Sood, Wipro—a large multinational IT consulting and systems integrator company in India—is now planning to set up a SVIO. The company which is one of the leading tech companies in India, has revenues of about $8 Billion (in 2014-15), compared to $15.5 Bill for Tata Consulting Services (TCS), and $8.7 Bill of Infosys, its two major Indian competitors. The Mint article also notes that Wipro management should be fully aware of the challenges in having success with building and operating a SVIO, as Infosys “…shut its research and development arm, Infosys Labs [a global network of research labs and innovation hubs], which first started in 1999, before merging it with the back-end verticals of the firm.”

Description

Here is a brief summary of the key aspects of Wipro’s plans as well as some of the reactions it has generated when the announcement was made:

  • Tech Innovation Center. Wipro’s plans are to build a tech innovation center in Mountain View later this year, and “…seeks to build products on automation and artificial intelligence technologies in partnership with innovative startups nested in the Bay Area.” The company already has a innovation center in Bengaluru, which employs 300 people, and the lab has “…helped the company come up with its first artificial intelligence platform, Wipro Holmes, and other technology platforms for its banking and financial services customers and retail clients, which the company believes gives it an edge when bidding for outsourcing deals.”

  • Size of operation. Nothing specific has been released by Wipro so far about the total budget it has set for the new venture, but the article notes that “…the firm plans to have ‘about 100-150 people’ working out of the facility,” but no timeline is given on how quickly it will ramp up to reach this size of staff, or what the staff composition will be, or how many will be hired locally versus brought in from the company’s other US operations.

  • Right Mindset of Executive Leadership. It seems clear that the point made earlier about Steve Hill of KPMG about the right mindset should not be a problem for Wipro. One can deduce this from who is driving the future role of technology, which is what their new SVIO will be focused on, as Wipro’s chief technology officer, K.R. Sanjiv, reports to Rishad Premji, head of group technology and strategy and son of chairman Azim Premji, and since they have decided to “…merge the technology office with the strategy office earlier this year as technology is core to the future of any firm.”

Comments and Observations

  • Central vs distributed R&D. This is a common challenge facing many companies, and some—like what Infosys recently did—move from a central or corporate R&D unit (which is what Wipro seems to be doing by creating its SVIO) to merging their R&D, or innovation operations, into their business units (in part to get them closer to their customers). Here is what the June 17 WSJ article noted about how Nordstrom dealt with this issue recently: “… Nordstrom Inc. revamped its approach to technology innovation recently. The retailer scaled back its central lab in favor of inserting technology innovators in business groups to work more closely with customers.”

  • Global R&D leverage. Wipro’s domestic innovation center seems to have had considerable success in building an AI platform, and is now seeking to perhaps extend and leverage this into similar tech platforms for its operations. If the company can successfully connect its Bangaluru researchers with those in Silicon Valley, as well as to (new) research and business partners in Silicon Valley, the company may be developing a model for global R&D leverage that could become very powerful.

  • Following footsteps of others. The Mint article notes that TCS “has a presence in the area [Silicon Valley] for close to eight years. Its COIN, or Co-Innovation Network, screens almost 800-1,000 start-ups every year, some of which work with the Mumbai-based company.” I don’t know what lessons TCS has gained during its operation (and how different its goals in Silicon Valley have been from Wipro’s goals), and what has worked and not worked during its time in Silicon Valley, but I would be very surprised if Wipro has not studied the SVIO of TCS carefully to see what it could learn from its experience, as it has prepared its plans for its own SVIO.

  • Silicon Valley vs India argument. Vivek Wadhwa, a well-known academic from UC Berkeley (and other academic institutions) and frequent commentator on Silicon Valley issues and developments, is reported by Mint to claim that “the vast majority of corporate incubators in Silicon Valley are disasters,” and thus argues strongly against what Wipro is setting out to do. I have not yet found out what research Vivek has to support his claim, but even if he has such evidence, would he argue that no one should become entrepreneurs since the vast majority of them fail? Also, Vivek suggested that a more sound strategy for Wipro would be that they “seek more partnerships with India-based startups.” I don’t doubt that there are excellent Indian startup companies, but if Wipro—like so many other SVIOs setting up in Silicon Valley—are focusing on machine or deep learning (marrying big data and neural nets, etc), Silicon Valley (or Seattle, WA) are pretty good places to be if you want to be close to other world-class researchers and developers in this field. Being close to Stanford University, which has been on the forefront of this field, and with growing number of VCs in the Valley now also focusing on deep learning (including Steve Jurvetson of Draper, Fisher, Jurvetson), I suspect that Silicon Valley is a better place to be than anywhere in India (but Vivek should know the India tech and research scene well, so perhaps he will prove me wrong!)

     

Airbus

On May 29, Reuters reported (“Airbus Group starts $150 mln venture fund, Silicon Valley base”) that Airbus Group Chief Executive Tom Enders announced a new centre in Silicon Valley “…weeks after Enders took the company's top management team to California to see what lessons could be learned from the digital revolution,” and thereby joining other SVIOs that were described in the mini-case studies in the previous Silicon Vikings blog article.

Description

Here are some of the main elements currently known about what Airbus is planning for its SVIO. But, since it is very early days in setting up the Airbus operations here, it will likely take some time before we have more details on how things will look and how their two main units (see below) will function.

  • Silicon Valley Innovation Center. The center will be run by “…Google executive and former U.S. aeronautics researcher Paul Eremenko,” and is expected to “…provide promising avenues for technology that [Airbus] might otherwise miss.” Paul Eremenko was director of engineering at Google’s secretive Advanced Technology and Projects organization and also worked for the Pentagon’s Defense Advanced Research Projects Agency (DARPA) technology incubator, so he has both deep technology expertise and no doubt has an extensive network of potential research collaborators here in the Valley and beyond.

  • Venture Capital Fund. The $150 million fund will be headed by Tim Dombrowski, formerly a partner at venture capital firm Andreessen Horowitz, and will “…invest in ‘disruptive and innovative’ technologies worldwide.” This Airbus corporate venture fund is just one of a large number of similar funds that have been established in recent years. At a recent session on corporate venture at High Tech Norway conference, the following statistics were given by Alexander Woxen of Startuplabs: (1) Corporate ventures on average make investments that are 35% higher than other venture players; (2) 475 corporate venture funds have been launched in the last 4 years, raising the total number to 1,100; and (3) 25% of Fortune 500 companies now have a corporate venture fund.

  • Aerospace Technology Innovation. Paul Eremenko and Tim Dombrowski will both report directly to Airbus Group Chief Executive Tom Enders and will be responsible for technology and innovation activities to achieve the goal of the SVIO of “…[accelerating] our transformation into an international leader in aerospace technology innovation.” The next few years will show what specific technology and business investments made by the Airbus Venture Capital Fund and the innovation activities of the Silicon Valley Innovation Center, in combination with the business accelerators Airbus plans to set up in Hamburg and Bangalore, India and if they will help turn Airbus into the leading aerospace technology innovator.

Comments and Observations

As noted above, it is too early to know what specific goals and objectives Airbus has for its SVIO, including what types of technologies they will be most interested in or what kinds of collaborators—startups and/or more established Silicon Valley players—they hope to form partnerships with. But, here are some comments and observations based on what we already know at this point:

  • Shortening Development Cycles. The Reuter’s article notes that “Boeing's Chief Executive Jim McNerney said last year it wanted it to be more like Apple in the way it innovates, rather than doing a ‘moonshot’ development every 25 years.” I suspect that Airbus has similar goals, and are looking for a range of technologies and other innovations that will ensure a continuous flow of useful applications into their airplane development process, but also into their business operations more generally.

  • More (and better) Software and Better Hardware-Software Integration. This is a common theme across most SVIOs that I reviewed in the previous articles, and software is a major source of strength and innovation in Silicon Valley, and GE and others have come here in part to be close to world-class software developers. But “new and improved” forms to integration of (new) hardware platforms and software, including the domain of “Internet of Things,” for instance, or in the domain of “Big Data” (perhaps together with machine learning) will be among the areas where large industrial companies from different industries will be looking for new innovations.

  • Technology for Next-Generation Manufacturing. The Reuters article noted that “…Airbus presented to journalists its plans for a futuristic factory in which humans, robots and cobots - or collaborative robots - interact to make planes more smoothly and cheaply.” The Airbus SVIO staff will have no shortage of emerging technology candidates that can find application in next-generation aircraft manufacturing, including speech recognition and image recognition (both key application areas of “deep learning” that is gaining increasing attention by leading research organizations in Silicon Valley), as well as in “soft robotics” (being developed at OtherLab in SF, for instance) or other elements of future robotics and drone development.

     

US Government: Defense Innovation Unit X and Cybersecurity

The history of Silicon Valley is closely tied to the federal government, both for funding many of the path breaking technologies (including the various technologies that have enabled the Internet) that have led to the growth of Silicon Valley and its dynamic innovation ecosystem, but also as a major customer for what Silicon Valley has produced—both products and leading edge research insights (in places like SRI International (formerly Stanford Research Institute), PARC and many others—a role that is often underappreciated (for a detailed account of this history, I highly recommend The Entrepreneurial State: Debunking Public vs. Private Sector Myths, by Mariana Mazzucato). And the close relationship—even at times when the relationship of WDC and Silicon Valley is highly contentious, as we have seen over the last year or more, in particular—still continues, but both sides now recognize they must make renewed efforts to improve and strengthen the relationship for mutual benefit.

Description

Two initiatives—one by the Department of Defense (DoD) and one by the Homeland Security Department—announced in late April aim to leverage and strengthen current operations that DoD and the Central Intelligence Agency (CIA) have in Silicon Valley, and build new capabilities.

  • Defense Innovation Unit X. According to Secretary of Defense, Ashton Carter (who did post-doctoral work at the Stanford Linear Accelerator Center and thus knows Silicon Valley), the innovation unit will be designed to invest in and partner with the region's technology leaders and startups. According to a report in Silicon Valley Business Journal on April 24, 2015, the innovation unit will be a “mix of active-duty and civilian personnel looking for ways to use new technologies and startups within the Department of Defense.” The DoD unit will reportedly work closely with CIA’s existing Silicon Valley investment arm, In-Q-Tel, a unit that was set up many years ago (1999) and has invested in numerous high tech firms in Silicon Valley working on advanced military and security related technologies.

  • Securing Silicon Valley Cybersecurity Expertise. Shortly before the DoD announcement of its new “Unit X,” Homeland Security Department (HDS) Secretary Jeh Johnson announced plans to open an outpost in Silicon Valley. According to HSD, the department wants to work with tech companies to beef up cyber security as well as hire Silicon Valley engineers for government jobs.

  • Defense Branch of U.S. Digital Service. Although this is not specifically part of the SVIO that DoD is now establishing or part of HSD’s new Silicon Valley office, this branch of the U.S Digital Service, which grew out of the technical team that fixed healthcare.gov will no doubt be trying to recruit technical personnel in Silicon Valley and build close connections to leading small and large technology companies in Silicon Valley.

Comments and Observations

  • It is no secret that the Obama administration and various federal departments and agencies and their leaders—including National Security Agency, in particular—has pursued privacy policies that are sharply at odds with what large number of leading companies, executives in large and small companies, as well as academics and researchers at leading Bay Area academic institutions, feel are appropriate. Many companies have also seen their business operations adversely impacted, especially in Europe, by some of these federal policies. Ashton Carter and others in the federal government recognize that they must work harder to make their case for how they want to access encrypted data of customers of Silicon Valley tech companies. But DoD and DHS also want to gain access to emerging, leading-edge tools and technology that can be used in many aspects of national security, including cybersecurity. And since data breaches in both the private and public sector seem to be increasing in number and severity—with the most recent case being online breach of reportedly unencrypted social security numbers and other information in data bases of the Office of Personnel Management (OPM)—finding new and improved tools and policies that protect online information and data is gaining urgency.

  • As long as Silicon Valley companies and research organizations continue to develop advanced technologies across a range of different domains, US government involvement in Silicon Valley will continue and could well increase—and may imply that the SVIOs discussed above will grow in size and scope. Defense Advanced Research Projects Agency (DARPA) continues to fund very advanced projects at the leading academic or industry research institutes in the Bay Area and many of these will likely result in commercial technology that startups will bring to market, attracting attention by In-Q-Tel and other Silicon Valley operations of DoD, HSD and other agencies.

 

 

Brief Bio

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.

etrondsen@sbi-i.com

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