Valley visitors must bring back more than the T-shirt

Most big companies can’t respond to new digital business models fast enough
Richard Waters

April 17, 2013


A new class of business pilgrim has been spotted among the internet campuses and low-rise industrial parks of Silicon Valley. "They’re pale, jet-lagged and dressed in black," says one financier who has received gaggles of the visitors.

They are the itinerant company executives who come from the benighted analogue world, often as far away as Europe. They typically represent the media (including the FT) and communications companies most directly at risk from the rise of digital competition, though increasingly they also hail from a wider range of industries that fear technological disruption. They arrive with one thing in mind: to learn the digital secrets that have turned the area around San Francisco Bay into an innovation hotspot at a time when much of the established world is in a low-growth funk.

When finished, almost all attest to a heightened state of personal digital enlightenment. But according to Silicon Valley locals, the chances that anything of lasting value will come from these pilgrimages are slight.

For the visitors’ employers, this matters. Assuming the trappings of the digitally savvy without learning the deeper changes needed to compete in this new world can leave a dangerous sense of complacency.

One person at Stanford University who sometimes plays host to the visitors derides their sojourns as "innovation tourism". The supplicants are largely unprepared and typically stay for a week, sometimes touring companies such as Google, Facebook and Cisco in organised groups that wouldn’t look out of place in the Sistine Chapel. The VIPs among them are given something to talk about when they get home, like a spin in Google’s driverless car or a chance to graze at the sushi and barbecue bars in Facebook’s free canteen.

Getting further below the surface is essential. One response to the perils of innovation tourism is to dig deeper and try to blend into the scenery. Kai Diekmann, editor-in-chief of German newspaper Bild, seems to have perfected the local look. When spotted recently by Der Spiegel magazine, he was wearing a Stanford University T-shirt, the sort of zip-up hoodie favoured by Facebook boss Mark Zuckerberg and canvas trainers without laces.

Mr Diekmann is part of a contingent of senior executives from Axel Springer who are 10 months into a year-long stay that is intended to digitally remake their mindsets.

One way that companies such as this try to harness the spirit they have come to observe is to make investments in hip young start-ups and forge other business. In the German media group’s case, this has involved an agreement with a Silicon Valley "business accelerator" called Plug and Play to create a copycat joint-venture operation in Germany and a small investment in an online marketing company called Pixlee.

There has been a new wave of corporate venture capital like this, echoing an earlier rush to invest that came at the peak of the dotcom boom, as other companies have tried something similar. But usually, these investments at the edge of their operations fail to have any deeper cultural or business impact. The last corporate VC bubble burst when the investors discovered they were getting little operational value from their financial dabbling.

The benefits of personal enlightenment certainly should not be underrated. Most visiting executives, even those on flying innovation tours, claim to come away with an advanced digital understanding.

But turning these quasi-spiritual experiences into something of lasting value requires both learning the right lessons and finding a way in which to inject them into their corporate cultures back home.

One is an appreciation of speed. As the veteran Silicon Valley financier warns, most big companies simply are not geared up to respond fast enough to the upheaval caused by new digital business models. By the time the corporate types have returned home, prepared their reports for senior management committees and had them refined for distribution to the board, an entirely new start-up will have emerged with an idea to destroy their business.

The most striking aspect of Valley culture, according to Christoph Keese, an executive who joined the Axel Springer contingent earlier this year, is the sheer intensity of start-up companies. The race to produce something of concrete value before their latest round of funding runs out – something that would force them to go cap in hand to their backers for more money and severely dilute their founders – makes every day a test of business survival.

Finding a way in which to inject that sense of urgency into workers back home is key. But few of the visitors go away with any clue about how to do that. They cannot replicate the immediacy of a start-up and workers insulated by steady pay cheques and corporate bureaucracies seldom appreciate the extent of the potential digital upheaval, however dark the warnings of impending peril from their managers.

Another is an appreciation of software development. As one venture capitalist points out, most media industry executives still regard software developers the way they do technicians such as printing workers: best left in a back room to get on with their jobs but not part of the creative process. That runs counter to the tech industry approach that makes developers equal partners – or even leaders – in product development.

Axel Springer plans to turn its extended Valley sabbaticals into a permanent fellowship programme – and not just for its top executives. Experiments such as this show that more companies are starting to understand the need for change. Whether they produce anything of lasting value is another matter.