Seven Questions for the CEO of the Consumer Electronics Association

Xconomy National — 

You may never have heard of the Consumer Electronics Association, but you’ve definitely heard of its most famous annual event: the huge Consumer Electronics Show, or International CES. The four-day extravaganza draws more than 150,000 attendees to Las Vegas each January to see keynote talks by top industry CEOs and exhibits from 3,000 companies.

Interestingly, though, CES’s gigantism is a fairly recent development. From 1973 to 1994, CEA mounted two smaller shows each year, both in Chicago. The winter event moved to Las Vegas in 1978, and the once-a-year format wasn’t instituted until 20 years later. And it wasn’t until the cancellation of the competing COMDEX show in 2003 that CES really exploded in size.

The executive who engineered the gradual rise of CES was Gary Shapiro, president and CEO of the Washington, DC-based CEA since 1990. The rocky history of CES, and the strategy that eventually helped it to kill COMDEX, is one of the stories Shapiro tells his new book Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses.

CES won, Shapiro says, partly by turning COMDEX’s strengths against it. For one thing, CES defined consumer electronics so broadly that it included all the same computing technologies on display at COMDEX. Then it stole away headline speakers like Microsoft’s Bill Gates, Sun’s Scott McNealy, Oracle’s Larry Ellison, and Cisco’s John Chambers.

Those kinds of moves might sound familiar to martial arts practitioners, and in Ninja Innovation, Shapiro—a black belt in tae kwon do—squeezes the martial-arts-warrior metaphor for all it’s worth. While the CES story shows up in the epilogue, the book isn’t really about consumer electronics. Rather, it points to the legendary qualities of Japan’s ninja class (stealthy assassins and saboteurs often hired by samurai to do their dirty work) as examples that can inspire businesspeople trying to succeed today.

No, Shapiro isn’t advising young entrepreneurs to slice open their competitors’ throats while they’re sleeping. He’s just saying that successful people, and successful companies, tend to do ninja-ish things like being goal-focused, operating as teams, taking risks, adapting quickly to surprises, and (sometimes) deceiving through invisibility and disguise.

I met Shapiro for lunch recently in San Francisco, and later followed up by phone. I wanted to ask him how much ninja-style innovation he sees in the consumer electronics business today. I was also curious about how the CEA operates in Washington, how Shapiro sees the future of CES, and what the consumer electronics industry is doing to confront environmental challenges. Here’s an edited transcript of our conversation.

Xconomy: Your second book, Ninja Innovation, came out in January. Who should read it?

Gary Shapiro: People who are interested in technology. Younger people thinking of starting a company. Anybody who wants to improve themselves. There is a whole bunch of my experience in the book about how to take advantage of any situation you’re in—the things I wish I had known when I was younger.

Having written the first book [The Comeback, 2011], I learned that the people you reach are not always those you expect to reach. I have heard from hundreds of people who read the first book and said it changed their lives or their kids’ lives. They went back for their own degree, or did something big. I realized that you are writing for many different audiences.

The premise of both books is that the U.S. is the most innovative country in the world. The question in the first book was, How do we stay that way? It was aimed at policymakers. The second book is aimed at people as individuals: this is what you should do if you want to grow in your career, do something different, make something.

The bottom line of the book is that ninjas make things happen by thinking outside the box, by collecting complementary teams of people who are not like them but have different strengths, and by taking risks and learning from their mistakes. It’s all in the context of, this is the most innovative country in the world, but we have to fight to stay that way, both as a country and as individuals.

X: Do you ever worry that other countries, like China, are rapidly picking up some of these principles of ninja innovation?

GS: China is clearly a major competitive threat to the United States in the next generation, even by the sheer numbers of engineering degrees they are giving out. They’re studying us. And they’re sending their students here at younger and younger ages. Chinese students are now required to learn English in virtually every Chinese city, at every age.

My own son is five years old and he speaks fluent Mandarin. We have a Chinese nanny living with us, and we hired her because of her language skills. So I walk the talk here.

But it’s not just China. Other countries have figured out some of the things we are doing and the world has changed, so innovation can occur from any computer or smartphone or tablet anywhere. Most of our graduates in STEM [science, technology, engineering, and math] are now foreign-born now, are not citizens. So we have to step up our game.

X: Do you see enough ninja-style innovation happening in consumer electronics right now? It seems to me that there’s a lot of fast-follower behavior. If one company like Jawbone comes out with a successful Bluetooth speaker, for example, all of a sudden there are 60 companies selling Bluetooth speakers.

GS: I think we are entering a phase of more rapid innovation in consumer electronics. We are certainly shifting. After a few years Moore’s Law may not be true anymore, so we may be going to more MEMS [microelectromechanical systems] and nanotechnology. There is great growth potential in robotics. Obviously anything Web-based or cloud-based is just a phenomenal growth area. And things that are more electromechanical, like a driverless car. There are many areas where the growth curve is foreseeable, and we just have to get there, and other areas like wireless health where it’s certainly going to be big but the details are difficult to project.

But I totally agree with your comments. Your example may be Bluetooth speakers; my example is tablets. At CES in 2013 we counted 50 different companies with tablets. We know that they won’t all survive. Some of them have done well, like the Samsung Galaxy, and the Kindle is still out there.

The point is that with every major breakthrough, there will be followers. That’s one of the wonderful things about the free market—sometimes the innovative product isn’t the breakthrough product, and someone else is going to make it better and make money on it. I am neutral about that. It’s the free market. But as a corporate strategy, I think it’s better to be the innovator than the copier. I think being different is better.

X: The CEA’s International Consumer Electronics Show is already one of the biggest trade shows in the world. As you think about how to make it better and more useful, rather than just bigger and more overwhelming, what are your priorities? Will the Eureka Park area for startups continue to grow?

GS: The show is doing amazingly well. It’s not that we’re brilliant, it’s just that it has captured so much innovation and become the meeting point for those focused on the future. It’s a five-senses experience that allows you to know a company and their innovations. Our goal with the show is to have it be the one place each year where everyone involved in technology at a global level can come together in a very efficient three or four days. And our research shows that people put tremendous value on that.

What we have to do better is make sure every show is different and fresh, so that we always have something that is compelling. We are always looking for new categories to expand to, whether it’s wireless health or robotics or the automotive sector. But we have a limit on our growth. We can’t be so big that people feel it’s impersonal, or they can’t fine people in their own interest areas. A lot of our investment is going into building a great mobile app for the show, so that people can connect and do business better.

Eureka Park is part of the philosophy of the show, which from the beginning was built around the smallest companies being exposed to investors, retailers, partners, and media. We are trying to figure out how we can expand it, given that the show is virtually sold out, but startups are excited and there is some great stuff. It is curated, growing, and important, because startups are where a lot of innovation comes from, and we want to keep that as a significant part of CES.

X: Let’s talk about the association itself. You told me when we met a little while ago that the CEA doesn’t ask the government for much. Yet you’re based in Washington and you have an important lobbying presence on Capitol Hill. If you’re not asking for things, are you playing a purely defensive role?

GS: Let me clarify. We don’t ask for money—it’s something we have never done and I hope we never do. What we are asking for is a focus on innovation as a strategy for our national government. We are at the cutting edge of a whole bunch of major issues; we are almost always there first and loudest, and I think we have an impact.

A few years ago, for example, we were focused on getting all of the free-trade agreements passed. What we have been focusing on more recently is what we call “strategic migration” and making sure that STEM graduates have a shot at citizenship, rather than kicking them out of the country. We have been very successful; Congress and the president support us. Sadly, this is all caught up in the bigger immigration bill, and the jury is out.

We are also focused heavily on reforming patent law, which has been the scourge of innovation, affecting startups as well as larger companies. It has diverted talent and drained corporate coffers and has been very bad for innovation. There is also an effort to make every product accessible by every disabled person, no matter what the product is.

We did 100 filings with the Federal Communications Commission in 2012 alone, because there are so many efforts by the government to regulate us. Every time there is a new regulation, it is a new barrier for an entrepreneur. So a lot of what we are doing is defense. But sometimes things happen despite our best efforts. Like on conflict minerals—the input into our products, including some types of rare metals. There is a whole new regulatory structure in place [e.g., supply chain traceability requirements mandated by a section of the Dodd-Frank bill in 2010 and recently implemented by the SEC].

X: You mentioned conflict minerals. That leads me to a question about the environmental footprint of consumer electronics and efforts to increase recycling. What is the CEA doing to encourage progress in these areas?

GS: The first big area is energy efficiency. The energy our products use generally comes from batteries or the electricity you get from your wall. We decided about 15 years ago that first we have to know how much energy we use, so we created standards that are worldwide now for measuring how much energy our products use. Every TV set, every appliance has this information, so a consumer can make a decision.

Then there’s cutting energy usage—and our products have had phenomenal cuts in energy usage over the years. Newer products always use less energy than earlier products. Our only hassle with that, frankly, is California as a state, which has some rather absurd, non-science-based proposals on energy usage.

The second big area is product lifecycle and recycling. We have gathered every major company in the industry, from Dell to Sony to Apple, and they’ve agreed to targets for recycled products. We have a billion-pound challenge going—a five-year goal to recycle a billion pounds of consumer electronics. We are in our third year, and hopefully we are going to make it.

X: As a gadget freak and as a middle-class American, I own more than my fair share of electronic devices. As living standards rise around the world, do you think there’s a sustainable way for seven billion people to all have their own smartphones and computers?

GS: I don’t think seven billion people having their own devices will destroy the environment. I think it would be arrogant for us as a nation, or for any segment to say that we are entitled to these devices but other people aren’t. There’s a lot of studies that show that consumer electronics are a small part of the overall garbage flow—it’s less than 5 percent. So in terms of the contribution to what some people see as limited landfill, I don’t think that’s the issue. Is there an environmental impact? Yes, but because of their devices, people are getting better healthcare, better educations, and have the opportunity to advance and create businesses.

Increasingly, though, there are ways of repurposing used devices. Your phone may get stripped down for its essential metals, or it could be reused by somebody else.

What’s implicit in your question is that government has to step in and regulate to ensure that an environmental disaster does not occur, and I would submit that if the government steps in, it would hurt progress. Progress is more likely to shrink products and lower their weight and their energy usage. So these things have a way of working themselves out in the marketplace.