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

GreenOrder

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.

Customer Relationships

Utilities need the means to have a richer customer relationship and dialogue on complicated issues. It's not just about keeping the lights on for the customers phoning the call center anymore.

Customer relationships must be about more than an outdated notion of customer service. Utilities need to develop customer-facing capabilities that can enable a richer customer relationship and inform a dialogue on complicated energy issues. The traditional call center and training of customer service reps are not going to cut it.

The service reps need to be able to explain how automatic meter reading works, or what to do if the milk keeps going bad in your smart refrigerator, or what to do if you're thinking of buying a plug-in hybrid. Companies also need to consider the call center a primary source for engaging customers for feedback on new products and services, so product developers can discern what customers want and don't want.

Business Ecosystem

Utilities need to be attuned to novel partnerships and investment opportunities, and they need organizational capability to explore, select and scale new technology. Many new cleantech companies pose either new competitive threats or new venture opportunities for utilities. Either way, they demand active, innovative, and strategic response. At the Wall Street Journal's ECO:nomics Conference in Santa Barbara, Bloom Energy CEO KR Sridhar stated it well when asked if his company will compete against utilities with his low-cost fuel cells. He said, "I see this as an ecosystem. We want to find ways to collaborate with the utilities." In the audience, the CEO of one of the largest U.S. utilities said with a smile, "We'll talk."

Innovation Systems

To move innovation from rhetoric to value creation, companies need to set up cross-functional mechanisms that systematically operationalize innovation initiatives. In his book "Innovation to the Core," Peter Skarzynski highlights a number of success stories from major corporations with lessons that can carry over to innovation in the energy sector.

One example Skarzynski cites is the cement producer CEMEX, which has created cross-functional teams of 10 to 12 members to generate new ideas and breakout proposals around major platforms or themes. An innovation board with a multi-million dollar budget screens and finances these proposals. Another example is Whirlpool, which created an IT platform called Innovation E-Space to integrate all of Whirlpool's people into the innovation effort and track progress on innovation across the corporation.

Other Key Dimensions

Along with the steps outlined above, there are a number of other critical elements that come into play. For example, another key aspect of a comprehensive approach to environmental sustainability is the development of metrics that measure the energy and environmental impacts of product and service offerings, such as those used by General Electric's ecomagination. Along with clear commitments, these are indispensable for focusing effort and investment in R&D and product development, as well as for clarifying communication (internal, as well as with customers and policymakers) on the product attributes that really matter and create value. I will explore this and other enabling approaches for cultures of innovation around clean energy in the second article of this series.

Truman Semans is a principal of
GreenOrder, an LRN company. GreenOrder is a strategy and management consulting firm that helps companies gain competitive advantage through environmental innovation.

Image CC licensed by Flickr user Tambako the Jaguar.