David and Goliath? Developing clean technology in firms big and small
Can big companies innovate? What’s the best path to impact for a small company? Big companies are increasingly harnessing external ideas and putting their R&D to work in other sectors through open innovation. In energy, many small companies must partner to reach scale. This panel will illuminate the tension between big and small and compare the roles of national labs, innovators and incumbents in innovation.
Moderator: Brian Steel, Co-Director, Cleantech to Market
Brian Steel is Co-Director of the Cleantech to Market program at UC Berkeley and a governing partner of Clean Energy Advantage Partners. Brian serves on the advisory board of the Berkeley Startup Cluster and is a mentor to companies in the Greenstart digital cleantech accelerator. He is an advisor to the Department of Energy, on both renewable energy financing and solar initiatives. Prior to joining the UC Berkeley faculty, Brian was Vice President of Corporate Strategy & Development for PG&E Corporation, where he led the energy industry’s first tax-equity solar project financing by an investor-owned utility.
Devin MacKenzie is an expert in emerging electronic materials. He is currently CEO of Imprint Energy, a Berkeley spin-out commercializing ultrathin batteries. At Add-Vision, Dr. MacKenzie was the CTO developing flexible OLEDs. Prior to Add-Vision, he led RFID development at Kleiner-backed Kovio and co-founded Plastic Logic from the University of Cambridge. He has 110 patents and publications and doctorate, master’s, and undergraduate degrees from the UF and MIT.
Snehal Desai, Global Marketing Director, Dow Water & Process Solutions
Snehal Desai is the global marketing director for Dow Water & Process Solutions responsible for developing and implementing the marketing strategy and delivering anticipated revenue growth across the global technology portfolio. Desai joined Dow in 1988 as an account specialist in Liquid Separations and since then has filled various roles including commercial manager for the sweetener industry, business leader for Plastics, New Business Growth and e-Business, as well as the vice president and chief marketing officer of Cargill Dow LLC (NatureWorks LLC). Snehal has a BS in chemistry and Chemical Engineering from the University of Michigan and an MBA from the Kellogg Graduate School of Management, Northwestern University.
Nancy E. Pfund is Founder and Managing Partner of DBL Investors, a venture capital firm located in San Francisco, whose goal is to combine top-tier financial returns with meaningful social, economic and environmental returns in the regions in which it invests.Pfund sponsors or sits on the board of directors of several companies, including; BrightSource Energy, SolarCity, Solaria, Primus Power, Eco.logic Brands, OPx Biotechnologies, Powergenix and, prior to their public offering, Tesla Motors and Pandora Media.
Paul Straub is a Director and invests in energy technology. His investment portfolio includes Adura Technologies, Alphabet Energy, Inc., EcoFactor, and Project Frog. Paul brings over a decade of experience investing in and working for technology companies. Previously, Paul spent several years as an Associate at Infinity Capital and Information Technology Ventures, where he focused on early-stage investments in software and services companies. Paul holds an MBA from Duke University’s Fuqua School of Business and a BS in Commerce from the University of Virginia’s McIntire School of Commerce.
Responses to Selected BERC Questions by Henry Chesbrough, UC Berkeley Professor at Haas Business School
Q: What are the biggest barriers to innovation for large companies?
To put my response into context, when I wrote the first book in 2003, I ran a Google search on the term open innovation. The result: 200 page links that said “company X opened its innovation office at location Y”, but really no meaning to the two words together as a phrase. By contrast, when preparing for a talk last month, that same search generated 483 million links, most of which addressed this new and very different model of innovation. Moreover, there have now been hundreds of academic articles written on the open innovation approach, and there is even an annual PhD conference that trains dozens of new scholars each year who are writing dissertations on the topic. So open innovation has become a movement in its own right.
This sets the context for the barriers to innovation for large companies. They are able to invest significant sums of money in R&D, and they have extensive market knowledge, so it would seem like they have the inside edge on innovation. But large companies are also often trapped by their current business models, which makes them perceive the world myopically, and also makes them quite inert in the face of new technologies when those technologies don’t fit with their predominant business models.
Q: Particularly in capital-intensive industries such as the energy sector, what role do small companies play in the innovation ecosystem?
Small companies are the pilot fish for the innovation ecosystem in the energy sector. They seldom pioneer fundamentally new technologies based on new, state-of-the-art science. But they are agile, move fast, and highly adaptable. This makes them very effective at exploring new business models. One quick example of this is in residential solar panels. While solar hasn’t yet overtaken coal and natural gas in the cost of generating electricity, solar can deliver energy to a specific site without all the grid infrastructure the other technologies require. And new business models are offering residential customers the opportunity to lease PV solar panel installations on the roofs of their homes, in return for signing a long term contract to buy the energy from the provider. This is all behind the meter, and greatly reduces the demand on the grid for those customers. Best of all, the customer need not put up any cash upfront. This is starting to drive penetration for PV solar panels in the residential market.
Q: What do you personally believe to be the role of government in fostering innovation in the sector?
Open innovation thrives in an environment with a vibrant intellectual commons. Government needs to organize and tend to the health of that commons. Policies that stimulate the formation and sustenance of an intellectual commons are to be encouraged. Initiatives like open government and open data, for example, improve the transparency of public agencies and the data that they generate. This will expand the opportunities for open innovation in the public commons. Universities also have an important role to play. They serve a critical role in the domain of basic research that underpins long term innovation in many industries, so strong support of university research funding is vital. Also important are university and public policies that disseminate that information broadly. So inviting external scholars into the university, sending scholars out to other universities and to industry, inviting industry researchers in to the university, and broad publication of research results all will enhance the results from open innovation.
Intellectual property is another area that has powerful innovation effects in an open innovation policy. I believe that the strength of intellectual property should follow an inverted-U shape. Initially, government should provide some level of protection, so that there are incentives to pull research out of university labs, take risks to startup new ventures, and attract external capital to support those new ventures. A moderate amount of IP protection is ideal for open innovation, so that IP enables knowledge flows into and outside of firms, and supports novel business models to commercialize that knowledge in the marketplace. However, when IP protection becomes too strong, the innovation incentives tilt toward the initial inventor, and discourage subsequent knowledge flows to others who build upon, improve, and disrupt that initial inventor. The initial business model risks strangling the growth of improved models. So the shape of the curve should turn down when IP protection becomes very strong.
Q: What would you consider to be the important best practices that the most innovative companies use to foster a track record of success of bringing innovations to market? Within a successful innovative large company, what’s a snapshot of the actual innovation process? Is it dominated by top down goals or bottom-up discoveries?
One recent best practice I have seen in energy and open innovation comes from GE, and its recent ecomagination challenge. While GE has a very large energy business of its own, with revenues of nearly $40 billion annually, the company has noticed a great deal of venture capital and startup activity in green and renewable energy technologies. Recognizing its own limits, GE sought to establish a process to tap into the potential project ideas out there that had the potential to become promising new ventures in green and/or renewable energy.
But GE did this in an open way. Instead of doing all the work themselves, they enlisted four active VC firms who had already had experience investing in this space. Together, the four VCs and GE pledged a total of $200 million to invest in attractive startup ventures. The ecomagination challenge was born. In July of 2010, the challenge was launched to the world, and everyone was invited to submit potential project ideas for consideration for startup investment.
In the process, more than 3,800 venture proposals were received. As of this writing, 23 ventures have been funded, with five other projects receiving other awards, and even a People’s choice award was given as well. While the ventures are quite young, the VCs and GE are all enthusiastic about the experience. GE’s level of enthusiasm has led them to adapt the model to the health care space (a Healthymagination challenge was launched in 2011) and also in China (a challenge is underway there as well).
As the future unfolds, the innovation capabilities of organizations around the world will no longer stop at the boundaries of one’s own organization. Instead, an organization’s open innovation practices will extend to suppliers, customers, partners, third parties, and the general community as a whole.