Can America Close the 'Innovation Gap'?

Serial tech entrepreneur Judy Estrin's new book argues that an aversion to risk and long-term investment hurts America's ability to compete

Judy Estrin, a serial entrepreneur and former chief technology officer of Cisco Systems (CSCO), believes America faces an innovation crisis. Closing the Innovation Gap, which was released early last month, is Estrin's treatise on why America's position in the world has eroded in comparison with emerging powers such as China and India—and what government and business can do to redress the deficit.

Her text, which was penned well before the American financial system began to unravel, is all the more timely because of the panic in the markets. One core argument is that many executives have a penchant for short-sighted investments, and that cowed corporate boards are unwilling to ask hard questions. The collapse of Bear Stearns and Lehman Brothers only strengthens this critique.

Like many other commentators, Estrin also takes government to task for scaling back on nondefense science spending, leading some of America's innovation muscles to atrophy. This predicament may soon grow much more serious, as scientists around the world have warned, (Watch this video to hear Estrin's updated commentary on how Wall Street's turmoil affects America's position in the world.)

Book Offers Diagnosis

Estrin's résumé is impressive, and it gives her a unique vantage point. As a graduate student in the 1970s, she was a member of the research group headed by Vint Cerf, a computer scientist credited with developing some of the key building blocks of the Internet. (Cerf is now Google's (GOOG) chief internet evangelist.) In the late 1990s, Estrin served as Cisco's CTO, one of the most important technology positions in Silicon Valley at its heyday. She now sits on the boards of a number of high-performing companies, including Disney (DIS) and FedEx (FDX).

Her views may be rooted in Silicon Valley, but her diagnosis applies broadly to the U.S. economy. In the book, she ranges comfortably across all aspects of business, academia, and government. While it is now clear that many Wall Street firms had too high a tolerance for risk, other companies were too timid.

By confining their strategic goals to the near horizon, many missed the opportunity to innovate, she observes. Cutbacks in federal and university research spending caused new ideas to wither on the vine. Meanwhile, the dot-com bust caused lasting burns that left venture capitalists unwilling to make big, long-term bets. The problem, she seems to say, is with America's overall health, not the viability of any individual limb.

Moving the Ball Forward

Estrin is by no means the first to take up the topic of innovation's triumphs and tribulations. Long before the current financial crisis and Wall Street's tumultuous response, there was a palpable sense that the U.S. lacked the vitality of emerging economies. With an eye toward influencing the upcoming national election, consultant John Kao helped frame these concerns in Innovation Nation, published last fall.

Estrin, however, significantly advances the discussion.

At the heart of her analysis is the "innovation ecosystem," her model of the overlapping communities—business, government, and academia—that created America's post-World War II innovation boom. Though the term "ecosystem" is overused, Estrin frees it from cliché by describing how the whole landscape has changed since the 1950s.

She highlights, for example, how big investments in research sparked by the Space Race ended up fueling innovation at institutions such as Bell Labs and Xerox Parc, and how breakthroughs fizzled as a result of public and private spending changes beginning in the 1970s. By the turn of the century, she writes, "spirits were high…but the core values that had sustained our 'innovation ecosystem' for decades had been gutted from within."

Highlighting Pixar, 3M

Interestingly, Estrin's ideal for an innovation ecosystem is relevant both to individual organizations and to the nation as a whole. Whether the ecosystem is large or small, some researchers should be given the flexibility to explore broad, open-ended questions. Product developers, for example, might be charged with sifting through different types of research in an effort to come up with new inventions. A more market-oriented group should be charged with commercializing the results. Disney's animation studio Pixar and 3M (MMM) are exemplary in this regard, Estrin says. Both companies benefited from innovation ecosystems, and both had leaders and investors willing to place patient, long-term bets.

Estrin acknowledges that many U.S. companies continue to innovate. Examples range from Tesla's electric roadster to Google's search dominance. But her main task is to diagnose what ails American innovation, and where the worst damage has been done. Some of the prescriptions she comes up with seem overly broad and implausible in the current climate. She imagines, for example, a new government entity that sets science policy without congressional oversight. Others ideas, like higher pay for math and science teachers, are more targeted and have some support from both Presidential candidates.

Estrin is no alarmist; her tone is cool and her arguments balanced. Though a seasoned executive, she writes with the detachment of a scientist. "The only way to get beyond mere incremental improvements," she writes, "is to question the status quo." This, and a keen sense of timing, must have served her well as an entrepreneur. Indeed, Closing the Innovation Gap could not have hit shelves at a better time. In the panic created by the financial meltdown, Estrin's book may provide a worthy life raft for executives and policymakers.