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|  | NOVEMBER 29, 2004
The New Terrain for Silicon Valley John Hennessy, a leader in this unique American region, talks about the challenges ahead and how the Valley will have to change to cope Stanford University President John L. Hennessy is both an academic and a groundbreaker in computer engineering. In 1981, he led a team of researchers who developed a new variety of computer chip that was both faster and cheaper than earlier chips. His innovation help lead the way to now-standard corporate computing where PCs constantly talk to the server computers that are still replacing mainframes in back offices. At Stanford, Hennessy oversees a university known for an unusual symbiotic relationship with the local business community in Silicon Valley. He recently spoke with BusinessWeek Silicon Valley Correspondent Jim Kerstetter about the Valley and the nature of innovation. Edited excerpts of their conversation follow: Q: What do you see as the role of Silicon Valley in the future, particularly when it comes to innovation? A: I think the Valley still represents an area of critical mass in terms of innovation, an area that supports new business concepts as well as new technologies. I think it will continue to do that. And I think it will continue to be one of, if not the, leading forces for innovation in America. I think increasingly it's likely competition will be from outside the U.S. And I imagine many of those new companies, new structures, new initiatives will be located not only in the U.S. but with a division abroad as well. We've already seen that with a number of new startups having divisions in India or China. Q: Geographically speaking, who are the Valley's next big competitors? A: I think it's in Asia. Q: Bangalore? A: Sure, in software. And I think China in hardware. Those will be both partners and competitors in the same way that [happens] in the U.S. today. Lots of companies have divisions in Texas or North Carolina or some other area outside the Bay Area just to cope with the fact that there's a limited supply, there's a lot of competition here, and it's good to think about having that in different places. Q: You're talking about the geographic distribution of innovation, even within companies. How do you manage that? A: I think it's clearly not easy. But in the Digital Age, one can imagine ways of solving this problem. I think it's a difficulty coordinating multiple sites, and I've seen young companies fail over this as well because they couldn't do it. But I think now one has to imagine that it's rapidly becoming a requirement for success. I think management structures have to change in order to be flexible enough to make these kinds of distributed organizations work well. Q: A lot of people would argue that you need everyone in the same room. You need that white board in front of them, and you need to let them argue. A: I agree that at some point you need the whiteboard in the room. Now the question is: At some point can you partition that task? Let's take a simple example, like the design of a microprocessor. There's a time when you absolutely need everyone, meaning the core team of people who are intellectually leading it, which is probably no more than 10 or 15 people, in the room. Subsequent to that period, which may last anywhere from six to nine months, a tremendous amount of work needs to be done that will require hundreds of people, many of whom never would have been in the room anyway. That part of the job can, with adequate attention, be distributed. Increasingly, I think that's what we are seeing. Q: So what's the perfect example of that? A: I think you see a lot of examples where the core technology group is still in the Valley, but, for example, you're building some kind of widget, say a telecommunications device, and let's suppose that device has to interface with three different software systems and two different hardware configurations. You can imagine taking some portion of that task and performing it elsewhere. Q: So you're talking about the grunt tasks. A: Or the lower-level tasks initially. I think initially that's the case. In some sense that group you're outsourcing isn't providing the sustainable intellectual property advantage. They're providing what's absolutely necessary to sell the product. But they're not the core of your advantage. I think it's not unlike this concept that Cisco people talk about, core vs. context. What's your core, what do you really need to get the job done to sell to your customer? But it really isn't in your core competency.
BW MALL
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