Status of Silicon Valley
Last week, there were upbeat reports on the status of the valley, with various statistics:
• The number of CEOs who said their companies added jobs in 2005 in Silicon Valley rose to 55 percent from 41 percent in 2004.
• About 74 percent of those hiring in 2005 added between 1 and 100 employees.
• The number of companies cutting jobs fell from 24 percent in 2004 to 13 percent last year.
• Looking ahead, the number of CEOs who expect hiring to be better in 2006 climbed to 56 percent from 37 percent in 2005.
Two companies who have accounted for the bulk of the valley’s hiring in the last two years are Google and Yahoo. Both have chosen to keep huge percentages of their engineering in Silicon Valley instead of going the popular India route. As a result, the operating margins on their P&L’s remain in the “normal” levels of 18-25%. Given the profitability of their core businesses, which at this point does not require huge R&D support, however, these companies could be showing profitability unforeseen in history.
Instead, they have chosen to hire and keep thousands of people in Silicon Valley.
Whether hiring will pick-up significantly in the valley in the next few years, will depend largely on the engineering / development operation decisions that CEOs make. If 10% of the company is based in the valley with 90% in India, then hiring is not really going to benefit. After all, there is a BIG difference between About 74 percent of those hiring adding 2 employees versus About 74 percent of those hiring adding 29 employees.
Venture Capitalists, these days, like to optimize the use of precious capital, and insist that what CAN be off-shored, IS.
Deals are happening. CEOs are adding jobs.
The question is: 2 jobs or 29 jobs?
Sramana,
I guess innovation cannot be outsourced ? Not trying to be-little offshore resources, myself being one of them for a few years. It is very tough to innovate without having visibility to the market and also visibility to top decision makers. The whole eco-system for innovation is not yet there in India, but I am sure it should be sometime in future.
You really believe that thousands of people innovate?
Most of them simply develop.
Only a handful innovates.
Agreed, only handful innovate. But these handful tend to shine out of the hundreds who are developing. Those handfull make the difference IMO.
Actually, I think there are different levels of innovation. Most rehash, recombine, and recycle existing ideas. I agree that only the very few create new ideas. But even within the realm of new ideas, most are simple extensions. Only a handful in each generation are able to accomplish the engineering equivalent of Thomas Kuhn’s scientific revolution.
While we could certainly drift into a discussion of word definition for “develop” and “innovate”, I think there are important structural differences in how people think that are exposed by examining the extremes of idea creation. Of course, this is just Kuhn’s thesis rehashed for engineering
In the context of this blog entry, do we think there are cultural, market, or business differences that will limit the creation of intellectually or technologically revolutionary ideas outside of silicon valley? Remember the 5th generation computing initiative in Japan in the late 80s, early 90s? There were many water cooler conversations about Japan surpassing the valley in innovation. Ultimately, the effort failed to meet expectations, and it certainly wasn’t for lack of funding or enough bodies.
I think the highest levels of innovative work happen in dorm rooms, garages, and occasionally laboratories, not in the halls of major corporations. The “Innovator’s Dilemma” is at the root of this — stressing preservation of existing business at the expense of business growth and missing technology shifts. Established businesses tend to reward the wrong things — consistency of execution and bottom line profitability.
Outsourcing by companies does not really change this incentive structure. If we want CEOs to make different decisions about staffing, then we need them to understand how to structure their businesses with a different incentive structure that supports innovation, change, risk, and ultimately a different kind of culture within the business. Clearly this is an area where Google is trying to innovate.
I think the highest levels of innovative work happen in dorm rooms, garages, and occasionally laboratories, not in the halls of major corporations.
Sophos, agree with you. The “incentive for Innovation” in Silicon Valley is the best compared to any other place right now. At the same time, the ecosystem for innovation has not matured in outsourcing location, like India. As you said, its important for people to be “exposed” in order to think and lack of exposure is precisely the limiting factor. Google can extend (to some extent) its “ecosystem” of innovation to outsourcing locations and challenge employees there to think, no doubt. But a whole scale innovations, the likes of Silicon Valley is not yet happening.