Judith Estrin is the author of Closing the Innovation Gap: Reigniting the Spark of Creativity in a Global Economy, the Chief Executive Officer of JLabs LLC in Menlo Park, Calif., and serves on the board of directors of the Walt Disney Company and FedEx Corporation.

Best known for her work as an entrepreneur, and for her tenure as Chief Technology Officer at Cisco Systems, Closing the Innovation Gap focuses on systemic approaches to improving and protecting the eco-system of innovation.

In this wide ranging interview, Estrin explains how business and political leaders can embrace policies that embody the values associated with innovation – openness, risk, questioning, persistence, and trust. And she warns that recent changes in business and government practice are putting innovation in the U.S. at risk.

Ubois: What led you to write the book?

Estrin: I had a growing concern that started out focused on the entrepreneurial ecosystem here in the Valley, as well as the broader business community that I was exposed to through my board seats. There was increasing pressure for business people to focus on shorter and shorter term innovation, more incremental innovation, less disruptive innovation. I believe you need both: you need disruptive innovation to kick off new economic cycles, and to solve some of the really major problems we have, but usually the initial innovation is rough and needs incremental innovation to improve on soluctions and extend market cycles.

Many people say to me, “Judy, there’s innovation all over the place,” but I say, “Yes, but we have an innovation deficit, in that we are reaping the benefits of seeds that were planted 10, 20, 30 years ago. And we are not planting seeds at the right rate to be able to have ongoing, sustainable innovation.”

So, my focus was more about what I call sustainable innovation, which is the ability for a person, a company, a country, the world to have the type of environment that allows them to have a capacity for change, an ongoing innovative environment. It applies to businesses, but it also applies to individuals and society.

Ubois: There many definitions of innovation. Can you define what you mean by innovation, and talk a bit about the factors that influence innovation?

Estrin: Many people’s definition of innovation does actually not include basic science, yet I think basic science and research is such a fundamental cornerstone of innovation that I decided that I needed to – we as a society and as business leaders and as government, needed a common language to describe innovation more broadly.

So there were really two key constructs in the book as part of that framework. One is the notion that we should think about innovation as an ecosystem with three communities: research community, development, and application. The key part of that is it’s not a line, it’s not research – development – application. It is a circle, and they all interact with each other.

Communities of innovation (research, development, application) in the context of a broader environment (leadership, culture, education, policy, and funding).

Five environmental factors influence innovation: leadership, funding, policy, education and culture. And of those, leadership and culture are the most important because if you have the right leadership, you end up with the right funding, policy and education. Innovation is this interesting combination of top down and bottom up in the right way. Leadership needs to set out grand challenges, inspire, rally, and then, make sure that the environment removes barriers to innovation.

In the end, innovation is bottom up, it comes from individuals. And so, the culture is really, really important. So, that was one part of the construct.

Ubois: You spend a lot of time examining the values embraced by innovative persons and organizations.

Estrin: I started to think about what really makes an innovative culture? How can I describe the right soil, the right culture for innovation? Is there a way to explain the Gestalt behind innovation? That’s where I came up with this notion that there are five core values. Everybody I interviewed, every company I’ve built or been part of, everybody I’ve met who is really innovative as a leader or as an individual contributor, has these values. It may seem simplistic, but they really encompass what you need.

Ubois: Let’s step through those – Questioning, Risk, Openness, Patience, and Trust.

Estrin: Let me say three things about questioning. One is that curiosity drives innovation. That’s the most obvious part of this core value; people know that innovation usually starts with how can I do this better, why doesn’t this work, why don’t we have this – those types of questions. But another very important part is the framing of the question. If you frame a question broadly, you will more likely get more broad or disruptive innovation that will be longer term. If you frame a question that makes someone defensive, you will get less innovation than if you frame a question in a way that is inquisitive. There’s a big difference between inquisitive and judgmental questioning.

There is a third thing about questioning, and that’s self-assessment. People normally think innovation is examining something else, but innovative people also examine themselves. Everybody has a bias, and self-assessment is what allows you to keep thinking about that bias and changing it if new data comes in. Questioning is not just curiosity, but self-assessment. And it’s so easy – we can get down to the killers later – to create an environment, where subtly, self-assessment is discouraged. And a lot of people have a hard time with self-assessment.

And that’s why in the book, I talk about innovators needing to be critical optimists. You need to be optimistic about getting over hurdles, but you always have to be having that sense of enough self-doubt to say not only am I going in the right direction, but could I think about this differently, or is there a surprise over here?

Ubois: The unexamined life won’t be innovative. And risk?

Estrin: Risk is the capacity to be vulnerable, a willingness to fail. Unless you have an environment in which failure is treated as something to learn from and a step to success, then people won’t try new things. They will take the safe route. You really cannot have broad-based innovation unless failure is something that is admitted, discussed, learned from. What you really want to do is have an environment where you fail early.

A great example is the pharmaceutical industry that has gotten itself into this mode of blockbuster drugs. One of the reasons they’re in that mode is they don’t have good technologies to detect failure early. One area of research that I think is really important is something like biomarkers, so that we could learn more about drugs earlier. Then, you wouldn’t have to put so much money into the development of drugs before you knew whether or not they were going to fail.

Ubois: Openness?

Openness means open to imagine, open to surprises, open to other people’s ideas, to collaborate and to change. There are some people who will listen and gather lots of data, organizations that analyze and they gather all this information, they’re open to information. But, in the end, they don’t have a culture of being able to change the way they do things or people. So, the openness, the collaboration, the open to surprises, everything from penicillin to Viagra to the Ethernet came about because somebody actually was studying one thing, but something happened over here, and they were open enough to look at that surprise.

Ubois: It seems closely related to self-assessment.

Estrin: At one point, I had self-assessment as part of openness, but self-assessment is questioning yourself and being able to question yourself in some sense. Openness is open to other people’s assessment but also open to new data, but also includes collaboration and kind of just an open mind. So, the questioning and openness go together, but you can question and not be open, and you can be open and not questioning.

Ubois: Patience?

Estrin: This one is controversial. In an innovator, that means tenacity. In an investor, it means patience. In a leader, let things grow. And very often, I have entrepreneurs say to me, “But, wait a minute, start-ups need a sense of urgency; that’s where a lot of innovation comes from.” My answer is patience is relative. The type of patience you need for research is different than the type of patience you need at the beginning of a start-up, where you’re trying to try different things. And then, once you know what product you’re building, OK, you go for it.

So, it’s relative patience and understanding the right level of patience that you need for different types of innovation in different types of environments.

Ubois: Or calibrating the risk given different time horizons. And trust?

Estrin: Without trust, people aren’t willing to be vulnerable. Without trust, they don’t self-assess, they don’t acknowledge failure. You are not as open when you’re not trusting.

The thing about these core values is you’re not allowed to just pick one, they go together. If you have trust without questioning, that’s blind faith. And blind faith is not encouraging of innovation. Another great example is if you have risk without questioning and without openness, you end up with today’s economic financial crisis; people took risks, but they didn’t ask questions. There wasn’t transparency as to what they were taking risks on. Then we lost trust, and everything froze. So, that’s actually an interesting example of how the values play together.

Another way to summarize why I think we are where we are today is that in the years leading up to the bubble, so the late 90’s, we lost our patience. And between the bursting of the bubble, the corporate scandals, 9/11, we lost our willingness to take risk. We overreacted to those events and lost our willingness to take risk. And then, the psyche of the country, the way the leaders reacted to 9/11.

Ubois: Questioning became unpatriotic.

Estrin: Questioning was discouraged, [so was] openness. We closed in and we lost our trust. And so, really what’s happened is we’ve undermined all of these core values and we really need to actively get them back. And it happened as a country, I think it happened to people individually.

Threats can motivate innovation, or they can turn off innovation. If you’re the type of leader that takes a threat and uses it to create fear in people, but you do not ask people to get involved, then you have people who are afraid and helpless.

If, on the other hand, you take a threat and you turn it into a challenge and you rally people with that challenge to help them get involved, you turn on the leader in each individual, which actually encourages innovation. And after 9/11, we were made to feel afraid, but we were told to go shopping.

Ubois: There is a mindset in Silicon Valley that is fairly Libertarian, and any kind of policy-oriented initiative is to be viewed with suspicion, because if we let policymakers have a hand in the innovations they don’t understand, they can only make it worse. Maybe every once in a while, it’s OK to take government money, but basically, policies around innovation are bad. That’s one perspective here that I think runs through the Valley.

Another one would be innovation, of course, needs to have political engagement because it has political effects. I’m wondering, you’ve been in the Valley for a while and seen both and in reading your book, you’re clearly arguing for some policies around innovation, so I’m wondering if you could talk your way through that tension. . .

Estrin: As I was interviewing people, I talked to some who would tell me that the market takes care of itself. [But] the market has become so short-term focused that it’s broken. It can’t take care of the problems that we have.

Not only has the market become too short-term focused, Washington has become too short-term focused. And those two things combined have created a real problem. But, I think the government, even in normal times, has several roles. It has a role, in terms of inspiring and using the bully pulpit of leadership to throw out grand challenges. Look at what JFK did, in terms of the space race. That was in response to the Cold War and Sputnik, but we didn’t just decide to go build a bigger rocket.

Ubois: You have four “Sputniks,” urgent grand challenges, described in the book. Can you talk about those?

Estrin: Energy, climate change, healthcare and our standing in the world — each one is a serious challenge. Government has a role in research and education because those are things government needs to do for society what the private sector cannot do. Basic science makes returns to society. It does not return to any one business. And so, it has a role to play, in terms of funding science and research.

Ubois: When you are talking about returns, you open up questions about intellectual property.

Estrin: I don’t spend a lot of time on intellectual property issues in the book, but that’s another interesting discussion is who benefits from the basic science and the university technology transfer offices.

This is a good example of unintended consequences. The Bayh-Dole Act was intended to open up transfer of technology from universities. It backfired, and many universities started focusing too much on IP. Basic science and the early stages of research should be as unencumbered with as much sharing and openness as possible. Where you want to start putting on restrictions, whether it’s classification for government or commercial secrecy, or patents, is later on in the process, when you start thinking about actual development of technologies. It’s too bad that we have started either classifying or commercial secrecy or IP protection too early in the process, which, then, stifles that sharing of basic science.

Ubois: One of the mechanisms around responsibility is open access. If you’re trying to gauge unintended consequences of innovation, it’s helpful if people outside your field have a chance to look at what you’re doing. It’s often that single-minded focus that causes an oblviousness to consequences.

Estrin: Especially as our problems are becoming more interdisciplinary. That’s why the more sharing you can do throughout that early stages of the process, the better off you are.

Ubois: Can you expand a bit on what you said earlier about funding, and the role of government?

Estrin: First, government should not pick winners, but should have a strategy of investing along a broad range of fields and areas of science. The type of subsidy you might want is a credit on anything new, not picking solar over wind power over plug in hybrids, but trying to figure out a way to encourage people to take risks on new technologies to see what ends up being the best.

Government has an inspirational role, a funding role when it comes to research, and when it comes to education because those are things that people can’t do by themselves. Government has a role in policy, in terms of oversight, where oversight is needed. It needs to be very careful about regulation that when it’s too tight, it can stifle innovation, needs to be very careful about market shaping, i.e., subsidies.

There are times when you do want some market shaping done or some barriers removed. For example, the choice not to tax Internet was a very important decision, and immigration policy can cause openness or closedness. One way to decide is think about whether it negatively impacts any of those core values. Does it encourage risk or discourage risk? Does it encourage risk without questioning? So, the lack of regulation in the financial industry encouraged risk, impatience and lack of questioning. That’s a place where we needed some oversight.

Ubois: You’re talking about government’s role as advocate or guardian of certain values.

Estrin: Yes. And also, the government needs to be there to provide a safety net for society. I wouldn’t have said this five years ago, but in writing the book, it became very clear to me that if you don’t have some basic safety nets in society, education for your kids, healthcare, people won’t become entrepreneurs, won’t become innovators. They’re more likely to become an entrepreneur, leave their company and go start another company, if there is a safety net for their family. I’m not talking about welfare, per se. I’m talking about quality education for everybody in the country, affordable available healthcare for everybody that’s not tied to having to work for a big company, in order to get it.

Ubois: One of the things we’re trying to focus on is the dialogue between technical experts and policymakers. Everybody can partake of values discussions, but when you start getting into some of the implications and particular technologies, that gets a lot harder for policymakers to follow. Climate change is a perfect example. What set evidence do we believe about what’s happening to the climate? There are lots of ways in which that dialogue breaks down, but I’m wondering if you see some bridges between policy makers and the scientific community . . .

Estrin: One of the problems that we’ve had over the last eight years in the U.S. is that there is an increasing disrespect for science and scientific evidence.

There is a period of time in the discovery of anything where there’s some debate going on. Unfortunately, this kind of coincided with this period of time where the country was not self discussing, was ignoring a lot of data. And so, it got turned into more of a debate than it should have as data was increasingly coming in.

The question is maybe how fast or how, but the fact that the data was showing that change was going on and human behavior was causing that change was increasingly clear, if you believe the science. But fewer and fewer people were willing to listen to the science, to the point that it became a crisis, it became polarized. Any field of science should be open to debate, but this polarization that resulted from the political process and the blurring of the separation of church and state and all of that that kind of came together, whether it’s climate or stem cell research, is where it gets dangerous because then, you can’t have healthy science debate.

You end up with the partisan debate or the religious debate influencing the science debate. One of the most important things we have to do in this country is to get back to the idea that science is a political interest group. Now again, not all scientists are going to agree, and there needs to be forums for debate, but they have to be scientific debates and not political debates, which is what we’ve turned them into.

Ubois: That’s a nice segue into the politicization of science, and resistance to innovation …

Estrin: We had years of lack of funding in physical sciences, and we probably had too few people working in this area, and so the actual gathering of the data and understanding took longer than it would have been if we were more focused and if the government had reinforced data gathering in this area.

There are lots of ways to kill innovation, and one is through how you allocate funding. If funding is too scarce, people will take the safest choice as they’re applying their grants, they won’t apply for risky things. Peer review is a very important process, but it’s better for less risky research because there are no peers for the really crazy ideas. That was one of the reasons ARPA was so important – it was focused on finding great people and funding high-risk, high return research.

You have to be very careful about your incentive systems. Researchers are often incentivized by increasing their ability to get additional grants (which allow them to continue their work) and by recognition. And so, you just have to think about how you’re handing out these grants and make sure that they are balanced and that you have enough for young researchers and more mature researchers, for new ideas, and for incremental ones. We’ve gotten off balance in the last eight years.

Another way to discourage new ideas is in the whole attitude towards science. If people get to the point where they don’t believe anybody’s going to listen or it’s going to be too controversial to get funding for, they’ll go look at some other problem. There are lots of problems to look at as a researcher. And so, it’s not just the funding, but it’s the attitude, it comes back to that openness. If the funding agencies and the leaders are not open to ideas of any sort, then that will restrict innovation.

Ubois: One of the things that we touched on, had running through this discussion is this notion about unintended consequences, and who bears the risks of innovation. When you talk about risk in the corporate setting, for a company, it’s almost a duty to externalize costs, right? So, if there are risks associated with innovation, companies want to push those out onto customers or competitors, everyone else. And I’m wondering if you’ve come up with any ideas about that.

Estrin: Yeah, I disagree with that premise.

Ubois: Good!

Estrin: People now think like that because businesses today are pushed to believe that their job is to maximize earnings and maximize shareholder value in the short term. The job of a company is to maximize shareholder value over the long-term, which requires investment for the future, in addition to reaping the benefits of prior investments.

Companies can’t invest in basic science. I mean, some do, but that doesn’t really make sense because, again, basic science benefits society on a whole. But, they can invest in applied research, and they can invest in future growth initiatives and they should. And those companies that are really here for the long term do, even in down turns.

Ubois: Will it require changes in government policies to cross that gap or is a cultural, social thing?

Estrin: It’s cultural. I think it comes from Wall Street being so focused on short-term earnings.

Ubois: What are the incentives you can offer to encourage that sort of long-term thinking?

Estrin: Right, there are some things that the government could do. We ought to look at the R&D tax credit and we could do some things with the capital gains tax in terms of a graduated longer term benefit. Long-term capital gains is one year, but one year is not long-term.

The harder part is that culturally we have come to value trading and flipping over creating and building. Twenty years ago, many of the people who made money were people who built things, they built companies. A friend said to me the other day, “Come on, Judy, it’s the people who have money that create jobs.”

My reply was, “That used to be true. It’s not true, anymore. Now, most of the wealthy, who were the people on the top, the richest people last year? Most of them are hedge fund managers. And hedge fund managers don’t create jobs; they actually do the opposite.”

We need to go back to a culture that has respect for creating and building. And that’s hard, but that, in the end, is what we need to try to do to turn this around.

Ubois: Yeah, what I heard coming through in your book was concern for the next generation. It seemed that was actually one of the things that was really driving your research and your perspective and your thinking. It was kind of, well, how can we plan out over decades?

Estrin: I was focused on the unintended consequences of how leaders and policy and people stifle innovation. There’s a whole separate issue, which is not all innovation is good, and even some good innovation leads to unintended consequences that you have to be thinking through, and how do you deal with that? Somebody was telling me, and I can’t remember the numbers, but they were teaching a class on innovation, and they said, “If I were to stand up here and say I just came up with an invention and it was a phenomenal invention but X number of people would die a year from it, would you let it go?”

Ubois: Cars.

Estrin: And it was cars, right. In science and technological training, there are two things that don’t happen today that should happen. One is we don’t really talk about innovation process, how do you frame questions, how do you identify needs in our scientific training, so that we are really training minds to think innovatively.

Ubois: To recognize problem quality.

Estrin: Right, how you find problems, how do you identify them? But the second part that should run through our education system is a set of examples and ways of thinking through the consequences of how science might be used, where it overlaps with other disciplines, where it overlaps with unintended consequences, and at least being able to, as a scientist is doing their work, to think about where those consequences might be.

For that, you want to encourage scientists to be open about their work, get transparent, discuss with others, so that a debate can come early on about how it might be used for bad, as opposed to good. And you want to be careful not to stop the research or the science. But, there’s a point at which if you’ve had that debate, you might think about whether you take that science and allow it to . . .

Ubois: A bright line around the lab is something that several people have brought up.

Estrin: Right, yes, for instance, the whole issue of cloning, you know, it’s something we should understand, it’s something we should in science, but you might want to put regulations on whether you can actually do it at scale.

Also, does there need to be some potential self-regulation by industries or regulation by government in some areas that when you have a new technology? Unfortunately, legislation is always retroactive. Once we had cars, we had to decide, OK, at what age do you have a driver’s license and what are the rules of the road and what are the things that need to come into play?

Ubois: The precautionary principle is one of the approaches that in its strong form, it’s requires innovators to prove a negative …

Estrin: There’s no technology and there’s no science that doesn’t have potential for application in a negative way.

Estrin: I might mention, the innovation gap is not us versus other countries. The innovation gap that I’m talking about is the gap between where we are and where we were. But really, the gap between where we are and where we need to be and where our potential is, that’s the gap I’m talking about. And I actually think that the whole world, you want the whole world to be innovative.

Ubois: Yes.

Estrin: But, the same way when you build teams, the best way to build a team is with cognitive diversity. Not just diversity in race and gender, but also cognitive diversity. One of the interesting things about the world, if you think about a global innovation ecosystem is that we have cultural diversity. So, the people always ask me to compare, tell them a country that is doing it right.

Ubois: Little pieces are getting done right all over the world.

Estrin: That’s right, and in the end, that’s how the world works. But what educationally is going to work in China or Japan, you do not want to import that to the U.S. Our society and culture are based on a high level of freedom and individuality, and a more hierarchical approach that might be taken in China or Japan won’t work here. On the other hand, a country like Denmark, that decided to become energy independent and just is now the biggest exporter of wind power elements, was able to do that because of their culture.

We shouldn’t think that we have ownership of all ideas. We should collaborate and be open and allow those ideas to flow. But, we need to be very, very careful about this notion that because we’re good at bringing products to market, we should let other countries take over the responsibility for investment in research and basic science. It’ll be the death of this country if we do not re-ignite our commitment to all three communities of the innovation ecosystem.

Ubois: Thank you very much for taking this time with me, I really appreciate it.