Monday, October 18, 2010

What Edison Would Tell Utilities Today

The other day my colleague Mark Johnson wrote that it is taking utilities a long time to develop smart grid technologies because the smart grid is fundamentally about less — i.e. running the grid on less electricity via better and more efficient operation, which stands in direct contradiction to power companies’ fundamental business model. But this is not the only business-model challenge power industry incumbents face when confronted with the infrastructural shift of the smart grid; in order to fully realize the opportunity, they will have to get comfortable with different.

We make a distinction here between technology invention and business model innovation. Technology breakthroughs, like Thomas Edison’s light bulb, essentially create something new. Business model innovation, like Edison’s complete system of power generators, transmission lines, and meters that together made the light bulb usable, scalable, and affordable, commercialize new technologies. Edison was the rare individual who was both an inventor and an innovator; Bill Gates, it can be argued, is more innovator than inventor.

More often than not even the most potent enabling technologies are not really the ones that reap the rewards of innovation. Lockheed Martin and Boeing put up GPS satellites and happily collected substantial payments for doing so, but, in the years since, entrants like Garmin, Tom Tom, and Google Maps have constructed massive businesses on the backs of the defense giants’ satellites. Similarly, Verizon and the other major carriers spent billions upgrading mobile networks to digital, but new entrants to the cell phone market like Apple and Research in Motion cashed in on the data capabilities enabled by the more robust networks. Why is this?

The easy argument is to say that companies should stick to their knitting — that a defense contractor has no business pursuing commercial innovations, a communications infrastructure company no right selling phones, and a power company no right to dabble in services like decentralized generation, demand response, and vehicle charging. But that is letting structure get in the way of strategy.

Amazon proves that it doesn’t have to be that way. From its start as an internet book store, the company has serially innovated, becoming an online department store, then a storefront for other merchants, then a fulfillment agency, a web services company, and now an OEM, with the Kindle. Rather than letting the structure of its existing business define its opportunity set, Amazon invents new business models to seize new opportunities. Jeff Bezos told us that, “If you want to continuously revitalize the service you offer your customers you can’t stop at what you’re good at. You have to ask what your customers need and want, and then, no matter how hard it is, you better get good at those things.”

Ted Levitt made a similar argument years ago, when he called out railroads for thinking they were in the rail, rather than transportation, business at the dawn of the automobile age. Power companies are at a similar crossroads today — are they in the power production business, or the energy management business? Technological change is birthing new business models outside the old paradigm, and power companies can either relegate themselves to commodity status or get in the game.

Josh Suskewicz is a pricipal at Innosight.

Leave a Reply

Your email address will not be published. Required fields are marked *


*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Brought To You By

About Innoblog

The INNOBLOG covers all aspects of innovation, from strategy to execution, in thought-provoking and insightful posts. Innoblog is a group forum to which many Innosight team members contribute. Outside contributions are welcome too. The blog is edited by Evan I. Schwartz, who also edits Strategy & Innovation.

Stay Connected

Sign up for Innosight's free bi-monthly newsletter featuring new perspectives on growth and innovation.


Register