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Conference Asks: What Drives Innovation?

November 2006

STANFORD GRADUATE SCHOOL OF BUSINESS—If you're still wary of the internet as an arena for business, think again, says Google CEO Eric Schmidt. "The impact the internet will have on industry and society is not yet fully understood, and offers huge opportunities," Schmidt said at the Roads to Innovation Conference, held November 11-12 at the Stanford Graduate School of Business.

Schmidt talked about new internet architecture, for example, that is allowing companies and individuals to store data in protected, centralized electronic hubs, such as banks, which will eliminate the disaster of data loss when systems and computers crash. He also spoke of the eventual total convergence of all electronic functions—such as computing, telephony, and TV—on completely mobile devices that will proliferate in style "like ladies handbags."

Noting what he called the first rule of the internet—"that people have a lot to say"—Schmidt asked the audience to consider what it will be like when mass media loses its punch as content produced by millions of John and Jane Q. Publics continues to explode on the web. He also pointed to new business opportunities that will arise from both the desire to "spin" information to one's advantage online, as well as the need to filter through "data" manipulated by competitors. In a question and answer session, he referred to technologies Google is currently developing that will create a massive shift in advertising, allowing for more targeted ads across multiple media channels.

The way to keep a company fresh and innovative as it grows, Schmidt said, is to allow employees sanctioned creative time. At Google, for example, engineers spend 20 percent of their week on pet projects, and 10 percent on off-the-wall ideas the may seem unrelated to company business in the short term. Eliminating hierarchy and keeping decision making consensus-based also keeps an organization on its toes.

Paul Romer, STANCO 25 Professor of Economics at the Business School, said that the real drivers of innovation are a country's political and social institutions. "This is where you've got to make changes if you want to move from paralysis to economic success," he said. The concept hit home for numerous attendees, many of whom were Italian nationals present as members of NOVA, the Italian MBA Association, and URANIA, the nonprofit association for Italians in life sciences, both cosponsors of the conference. Stanford's Center for Global Business and the Economy was also a sponsor.

Roberto Crapelli, CEO of Roland Berger Strategy Consultants in Italy, said the governments of Western European countries such as Italy and France will need to make major political reforms and liberalize the markets if they wish to encourage innovation in business. Several panelists lamented the brain drain taking place in Europe as the best and brightest head for the United States, where venture capital is plentiful and entrepreneurs can easily bounce back if a business venture goes under. "In Italy, if a new company fails it could take you three years to get employed again," said Enzo Torresi, who has started five companies in the United States, including Businessland and NetFRAME Systems.

In the United States, universities also serve as a powerful force for innovation, said Tom Byers, a professor in the Stanford School of Engineering. "My work teaching over the past 12 years demonstrates that entrepreneurism can be nurtured," Byers said. "There was a time when there were great battles over whether business schools should teach it, but now it's seen as a legitimate career in this country."

Panelist Greg Waldorf, MBA '94, is one individual who took the skills in starting new ventures he gained at Stanford to found and invest in several startups, including eHarmony, the successful online dating service. He said the quality of entrerpreneurial education in the United States has become so high that he has been able to confidently invest in new companies started by students right out of graduate school.

Josh Stein, MBA '99, observed that the venture capital industry can also have a role in supporting innovation. As director at the VC firm Draper Fisher Jurvetson, he said he is regularly involved not just in providing entrepreneurs with funding but also in advising them at the early stage about critical matters such as creating a management team and hiring employees.

For companies already on the boards, the challenges of innovation in the high-tech sector can be tremendous as well, said Jeff Jordan, MBA '87, and former vice president and general manager of eBay. He noted, in particular, that problems can arise when a core business gets so large that a company finds itself struggling "to hold on to what it has" rather than staying aggressive. "I spent two-thirds of my time my last two years at eBay, which now has 13,000 employees, just working to keep my systems from getting so wooden that new ideas couldn't surface," he said.

To overcome petrification, advised Jordan, a high-tech company, especially, must keep an open ear to its youngest, greenest members. "Often the best ideas come from employees under 30 who have a fundamentally different relationship with the computer than the older folks," he said. "This means you must create an atmosphere in which new talent can be discovered." Agreeing with several other panelists, Jordan also observed that, in the end, a company that wants to stay on the cutting edge must give individuals the freedom to fail and get back on their feet.

—Marguerite Rigoglioso