Silicon Valley study tour a success AICD Review

Sunday, 01 April 2001


    In February, the AICD escorted a group of 14 directors and senior executives on a study tour of Silicon Valley. 

     Led by Richard Ryan, president, South Australia and Northern Territory Division, the group spent five days exploring what has made the Valley the mecca for high-technology companies and ideas. Participants met with the heads of industry giants and start-up companies, including Evan Thornley, co-founder and CEO of Looksmart; Bruce Claflin, president of 3Com; Robert Lee, CEO of Inxight Software and Paul Saffo, director of the Institute for the Future. William Grindley and Allen Stansbury from Silicon Valley-based Pacific Strategies coordinated the tour, their presence and commentary being greatly valued by the participants and the AICD. Following are reports by some of the participants.

    The spirit to survive failure

    In the wake of the current tech-wreck it may be tempting to think that the spirit of high-tech enterprise at the heart of Silicon Valley has been crushed. Nothing could be further from the truth. Certainly life is not as rosy in the Valley today as it must have been at the height of the bubble in which highly speculative venture capitalists funded foolishly optimistic business plans put forward by short-term focused dotcom techno-entrepreneurs with little real business savvy. Today, the real businesses of the Valley are suffering with sales down from the record high revenues of the past few years. Share prices have now deflated as investors realise such growth can't continue. The sheer scale of Silicon Valley is staggering. This home to many global high-tech businesses still has enormous wealth, awesome technical expertise and marketing power. Money may be part of the goal, but it is the spirit of the entrepreneurial challenge that gives Silicon Valley its vitality. The Valley supports and encourages enterprise at all levels, and business failure is not seen as bad, but rather as part of the process on the road to success. For example, Silicon Valley staff are often more employable after working for a failed business as they are expected to have learnt from the experience.

    The study tour was enlightening, stimulating, and intensively educational. Well organised by the AICD, it was a privilege to take part.

    Richard Keeves MAICD

    Internet Business Corporation

    Western Australia

    Valley of dreams

    To refer to the 80km strip south of San Francisco as Silicon Valley is today a misnomer. The manufacture of microchips has long since moved to cheaper locations. A better description for this epicentre of entrepreneurship is: the Valley of Dreams and Greed. It is the dream of changing the world (through technology) and the wealth that would follow which drives the manic innovation and sustains the focussed energy required to achieve this vision. Despite the tech-wreck the desire to innovate remains high. Casualties in the form of failed businesses, retrenched workers, empty offices and dashed dreams are abundant. But for every failure there are many others waiting for their chance. Creative destruction is both brutal and yet forgiving. Failure is not terminal but rather is a badge of honour – a sign of lessons learned. The allocation of risk capital is a form of meritocracy. It is the quality of the idea and its commercial potential that matters. What makes this place so unique is its network of clusters of excellence. An outstanding teaching and research -based university. Stanford with an endowment fund of $US9 billion and an annual budget of $US1 billion is well placed as a centre of learning.

    However, it is the interaction with business that makes its role so crucial and effective. The concentration of venture capitalists, the availability of patent attorneys, specialist executive search firms, management consultants and access to investment bankers is the glue which binds the network together. To the skeptic the Nasdaq crash is vindication. This view is dangerously inaccurate. Yes the excesses of the financial bubble are now being painfully corrected. The tech cycle will be deep and protracted. Yes Virginia there is a cycle. But innovation is continuing – if anything at an accelerating rate. B2B and B2C are discredited but ... the Internet will change everything. Not how we shop or process transactions, but how we communicate. We are rapidly moving to a world of convergence, connectivity and mobility. A hand-held device with voice, text and video capability will connect us to our staff, our suppliers and our customers. Anyone. Any time. Anywhere. For Australia the lessons are profound in their implications. Innovation, entrepreneurship and the application of human capital will be the drivers of investment, employment and wealth creation in the knowledge age.

    Excellence in education is critical. Our university system is fragmented, too dependent upon Government funding and wary of industry. This must change. Our culture denigrates excellence as elitism unless it involves the sports or arts. We cannot afford to pursue mediocrity justifying it as egalitarian. Our tax system punishes success to the point of driving many of our brightest and best offshore. Our corporations are too often risk averse. Many businesses, large and small, have been slow to embrace the potential of new and emerging technologies. In particular SMEs must rapidly become web-enabled. We need to develop a sense of urgency and to encourage innovation. When the CEO of one technology company was asked why he spends 23 percent of revenue on R&D and what tax incentives encourage this his reply was telling. The motivation was not any tax concessions, it was the realisation that the failure to innovate would cause his business to rapidly lose competitiveness. Australia can succeed in the knowledge age. The tyranny of distance and our small domestic market are no longer a handicap. The world is our oyster and it is only one click away. Australians can match it with the best in the world. The Sydney Olympics is the most recent testimony to this. However, we must adapt and our political and corporate leaders must provide real leadership. Otherwise the brain drain and the decline of the $A will merely accelerate.

    One week in Silicon Valley is enough to highlight that the Internet will change everything.

    Charles Macek FAICD


    Country Investment Management Limited

    First-hand learning the best

    The interface experience was an amazing opportunity to gain insight into the reasons whi Silicon Valley has become the hotbed of innovation and technology in the new economy . . . and how we might apply some of this learning back home. A major highlight was the opportunity it provided for meeting and networking with Australians who have taken their companies into Silicon Valley. Their preparedness to share openly with us many of the challenges they have faced was invaluable for anyone interested in taking their business into the global domain utilising leading edge internet technology.

    Yvonne Allen MAICD

    managing director

    Yvonne Allen and Associates

    Benefits of 'creative destruction'

    The impressive thing about Silicon Valley is the resilience of the common understanding among all concerned that they are on to something. Each individual can have a dream that they will make it and make it in a big way. But beyond the realm of influence of any one individual is the shared sense that this is the place that makes all parts of the puzzle fit and create new technology, new solutions and new economic miracles. The term "creative destruction" aptly describes the constant birth, death and renewal of organisations as they place their own stake in the ground, albeit briefly in many cases. The apparently smooth acceptance of individuals of a very insecure way forward is quite different to the attitude of the average Australian. In a similar vein, the acceptance of the Silicon Valley community of a failure or two as almost a necessary precursor to success would be hard to repeat here. Of course, these factors are related; if the community accepts a noble failure as a badge of honour, it would be easier to take the risk in the first place.

    So, while companies and individuals rise and fall in endless cycles, the Valley has found the way to ensure that the overall march is in the forward direction. All is not rosy and there must be many pockets of despair as even the larger companies lay off big components of their workforce. But they have captured some magic and it would be impossible to repeat the exact formula in a different cultural setting. Our challenge is to find ways to apply essential elements of the successful formula in ways that make sense in our society, workplace and in terms our investment community can understand. In the short term, this may well mean proving the application of the more successful technology solutions and business models in some of our more traditional business environments. This is much the same challenge that the rest of the United States has in looking over the Valley wall.

    Dr Norman Pidgeon MAICD

    executive director

    Intricas Pty Ltd


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