Fending Off the 'New Barbarians' with a Culture of Innovation

In his March 3 column, "A Word From the Wise," Tom Friedman recounted a recent speech Intel's Paul Otellini gave at Brookings that points out how desperately the U.S. needs to re-build its capacity for innovating and commercializing new technologies, as a foundation for economic competitiveness. Otellini painted a grim picture of declining conditions for innovation in the U.S. relative to, among others, China and South Korea.

There is a critical parallel between a national-level need for innovation and new technology and what is needed inside U.S. organizations. This is especially true of incumbent companies in the energy industry (oil and gas and electric power) that want to be competitive in a changing marketplace. (I will focus on utilities in this article and address factors specific to other energy companies in "Innovating through Alliance: A Case Study of the DuPont-BP Partnership on Biofuels.")

To succeed, companies in this space need a strong internal culture of innovation. By culture, I mean not just shared values but also organizational capability -- to actively envision, test and execute new products and services, new business models, new collaborations between internal functions and units, and relationships with customers and other stakeholders.

Major trends are forcing utilities to rethink the way they do business: swift and dramatic technological change, growing pressure for energy efficiency, resulting demand reduction, mandates for low carbon generation, vehicle electrification and -- sooner or later -- carbon caps or taxes.

At the same time, the New Barbarians are at the Gate, this time riding scooters and sporting goatees. Microsoft, Google and Apple are aggressively exploring the energy space. The potentially disruptive new models they are fielding still have not cut deeply into utilities' domain, but they have the potential to capture valuable aspects of utility customers' energy experience (and spend).

For utilities, what dimensions constitute culture and capability for innovation that are fit to tackle the challenges and explore the opportunities presented by smart grid or electric vehicles?

Leadership and Alignment

Alignment on a vision and goals that place innovation at a company's core is key to inspiring behavior change at all levels in an organization. Once the senior executive team is agreed and aligned, success depends on active communication from the senior leadership combined with material incentives to cascade the vision and goals through the company. Third-party assessments are a useful early step, benchmarking how well the company is performing in this area and setting a baseline to track improvement.