Competitions Drive Innovation: An Insider's View

Have you ever participated in an idea competition? Universities, government agencies, corporations and crowdsourcing sites provide opportunities for people interested in entering competitions.  As a veteran of five business idea competitions, including the 2008 and 2009 MIT Enterprise Forum Business Plan Competitions, a Fall 2009 MIT $100K Elevator Pitch Contest, and two InnoCentive online challenges, I'd like to share my thoughts about why these competitions are valuable for driving innovation.

When we hear the word competition, we tend to think of team sports (baseball, football etc.), individual athletic events (tennis, marathons, diving, etc. ), music and dance competitions, spelling bees, and pie or hotdog eating contests.  These are fun for both participants and observers looking to experience the thrill of victory and the agony of defeat.  In these kinds of events, winning or losing depends on a combination of talent, training, and luck.

Business idea competitions are similar in that they provide forums for engaging and energizing both participants and observers. Business ideas are different in that all contestants as well as potential investors and partners, not just the chosen few selected to receive prizes and recognition, emerge from the process as winners because of what they have learned.

Here are the kinds of benefits that competitions offer idea innovators:

1. Encouragement.  Opportunities for innovation are all around us, yet few people take the initiative to spend the time and effort to research and refine a business idea.  Why?  Because we are busy with other activities and finding time to be creative is difficult.  Competitions provide a set of rules, tools, and timeframes.  I was encouraged to take innovative ideas that I had in my head and do the work necessary to make them presentable and ready for competition. 
2. Differentiation.  Many business ideas overlap with similar ideas that may have already been designed into a product or service.  Preparation for a competition forces the idea owner to do research into whether similiar ideas already exist and to either articulate its uniqueness or make changes to the idea so that its differences are clear.  I found that one idea that I had several years ago, a real-time home energy dashboard similar to the gas/battery/mpg display in my Prius for enabling changes in behavior, had already been invented and commercialized (I bought The Energy Detective and use it every day).  As a result, I modified my idea to include capabilities not found in existing products.
3. Collaboration. Participants in competitions are encouraged and in some competitions required to be part of a team. This results in individuals with ideas teaming up with other people whose insights, skills and experience complement what the individuals bring to the table.  This tends to make for better ideas and teams that are capable of executing the idea in the marketplace.  As the idea owner, I recruited people to join my two professional teams for the MIT competitions.  This required me to articulate, defend, and modify the idea with the help of other people with different perspectives and skills.
4. Access. In addition to competing for monetary awards and professional resources, all participants benefit from the attention of potential investors, partners and team members.  These are necessary if an innovative idea is to ever have a chance of becoming a commercial success.

What are your thoughts?

Building Plants vs. Buying Power: United States Debate Renewable Energy Strategies

Getting a piece of the renewable energy pie has become a top priority for many states.  Desperately seeking exit strategies for the current economic dolldrums, many states want to actively participate in the post-fossil fuel energy marketplace. Solar, wind and geothermal projects made possible by state and/or federal tax credits, loan guarantees and feed-in-tariff legislation are being built throughout the United States (and in Canada which has a long history of exporting its natural resources to U.S. states).  From a national energy policy perspective, it is clear that some states have significantly more solar or wind energy available to be converted to power than others due largely to latitude and elevation.  Accordingly, a cost/benefit analysis done at the national level informing the decision of where to locate and support solar and wind farms would favor certain states over another. 

However, there are two reasons why renewable energy plant siting is all over the map.  First, many of the best sites for generating renewable power are far from energy-hungry densely populated cities and connecting the dots with lots of long distance tranmission lines won't come cheap (approximately $1M per mile).  Second, the states that make up the United States of America have their own thoughts on the extent to which they want to be suppliers, not just consumers, of  renewable energy. 

This debate reaches from coast to coast.  On the West Coast is California, a large sunny state with a long coastline where this question has caused a deep rift.  Rejecting legislation that would have required renewable energy quotas to be filled largely by in-state power plants, Governor Schwarzenegger issued an executive order giving out-of-state power plants equal footing with in-state plants to compete to supply clean energy to California's consumers to meet the quotas.  The governor, who continues to face an uphill battle to bring his state's fiscal crisis under control, recognizes that open competition is needed to ensure that the state and its citizens do not pay more than necessary for renewable energy.  In this example, cost effectiveneness of renewable energy trumps the potential additional jobs specific to the renewable energy industry that favoring in-state would have created.

On the East Coast is a collection of states including Maine, Maryland, Massachusetts, New York, New Jersey, North Carolina and Rhode Island, that want to have their renewable energy and produce it too.  For solar power, New Jersey ranks #2 in the country in the number of distributed residential and commercial solar power systems installed.  The state whose motto is "Liberty and Prosperity" made this happen by offering generous tax credits and tariffs and aggressive renewable energy standards, despite having less sunshine relative to other parts of the country.  For wind power, the states listed above are investing in and investigating large wind turbine farms, in addition to distributed solar.  Looking beyond elevated land where the wind is sufficiently strong and steady, these states are pursuing offshore wind farms.  Unlike in other parts of the country, sections of the state coastal waters are sufficiently shallow that wind turbines can be built in waters up to 60 feet.  For deeper state waters, taller or floating plaforms like those used for oil exploration and drilling are being investigated.

Why are East Coast states so interested in building their own offshore wind power? One reason is that wind velocity and frequency tend to be significantly higher over water than over low elevation land.  This means that wind turbines located offshore will generate more wind power output than onshore turbines, except for turbines located on especially windy mountain tops.  A second reason is that offshore wind farms are located at a distance from private property owners whose "not in my backyard" (aka NIMBY) opposition can delay or even prevent construction of wind farms. 

However, the promise of offshore wind power needs more time to prove itself.  Unlike land-based wind power which relies on mature, proven technologies that have been demonstrated to be cost-efficient in large scale farms operated by or for utilities, offshore wind power's cost-effectiveness is less clear, especially in deeper waters.  While offshore turbines do generate greater power output, there haven't been enough such projects to demonstrate that they are cost effective given the much higher construction and maintenance rates involved in operating mechanical and electricall apparatus in a hostile, corrosive sea environment.  In addition, property owners and others have successfully caused delays in offshore wind projects such as Cape Wind by alleging that turbines could cause harm to values of property with turbines visible in the horizon (aka "not in my ocean view" or NIMOV) or to birds or other marine wildlife.

As Eastern states pursue their own wind and solar farms, they must be realistic about the benefits of building vs. buying renewable energy.   Jobs involved in manufacturing, constructing and operating renewable energy plants can help reduce unemployment.  Once the systems are in place, however, the numbers of jobs dedicated to maintaining solar, wind or geothermal systems are relatively small.  States should keep their eyes on the main objective:  providing clean, renewable energy to government, commercial and residential customers.  The best strategy?  Build energy plants when and where it really makes sense and buy the rest of the energy at the best long term price.

Thoughts?

Where There's a Will, There's a Way: Fighting An Uphill Battle in a Flat World

Parents like to joke about how much harder things were back when they had to walk uphill both ways to school.  That feeling of facing an uphill battle in every direction is unfortunately all too common for today's job seekers.  High and still rising unemployment rates are motivating workers to seek opportunities in emerging green industries that represent the future more than the past.  However, firms pursuing these growth opportunities are reluctant to hire workers with skills and experience acquired in other industries.
  
Bridging this gap between workforce skill supply and demand must be part of the strategy for competing in a flat world where products and services move across national borders. At the risk of over generalization, the overall strategy for nations (as well as states and companies for that matter) can be summed up as follows:

1. wit:  witty countries have innovative research, development, manufacturing, training, and business models.  These tend to start off strong once they get started and then lose their lead to the second group. 
2. wages:  countries with large skilled workforces earning relatively low wages tend to overtake the first group by offering lower costs of production.  
3. will:  willful countries with the ambition and action plans tend to find success while the first group is still discussing its options and the second group is waiting for a mass market to develop.

To give this analysis legs, I'll name names.  The United States, Britain, France, Germany, Spain (and other Western European countries), Canada, and Japan tend to represent the first group.  China, India, Korea, Mexico, Russia and other Eastern European countries tend to represent the second group.  Membership in the third group varies depending on the industry and the particular political will and insight present at a given time.  For example, Germany in the solar energy industry is a shining example of a country that demonstrated its will to lead through very generous subsidies for installing solar systems despite its limited sunshine.  After years of success, Germany is having to deal with competing countries with lower costs (China) and more sunshine (parts of the United States and Africa).

France in the electric vehicle industry has stated its will to promote its workforce and auto makers as leaders in this emerging space by articulating an ambitious, comprehensive plan involving both sticks (carbon taxes) and carrots (subsidies for makers and buyers) to make it happen.

Does your country's leadership have the wit, wages and/or will to emerge from the global recession with its economy and workforce intact?

Thoughts?

Fleeting Opportunity to Jumpstart the Electric Vehicle Industry

Electric vehicles (EVs) are getting a lot of attention these days in auto shows and TV shows.  Looking beyond the buzz, the multi billion dollar question for the auto and energy industries is whether there will be millions or thousands of EVs on the road in the next several years. As with any innovative product or service, the speed and magnitude of adoption will depend on having sufficiently numerous and influential early adopters able to talk favorably about the benefits of driving and operating EVs.  Early success stories are critical to convincing the more skeptical masses to become part of the momentum that is building as the auto industry revs up its launch of EV models in 2010 and beyond.

One of the best opportunities to create groups of early adopters is to focus on organizations with large fleets of vehicles that tend to travel within a limited radius before returning to a centralized location where battery charging equipment could be used between trips or overnight.  Given the limited mileage and charging options expected to be available for most EV drivers in the early years, the auto industry should be speeding to provide customized EV models and charging stations that make it easy to convert entire fleets of cars and light trucks from gas to electric power.

Government subsidies and financing of the production and purchase of EVs suited for fleets would jumpstart the EV industry by providing a volume of demand for EVs that is needed to achieve economies of scale in producing, distributing and servicing EVs.  This would be an especially worthwhile investment since it would not only benefit EV producers and their supply chains but it would also benefit purchasers who would see lower priced EV models due to the costs of producing EVs and key components such as batteries being spread across a much larger number of EVs sold.

Examples of organizations with fleets that have recently announced considering or committing to electrifying their fleets include:
1) US Postal Service
2) Duke Energy Corp. and FPL Group Inc. 
3) Nihon Kotsu taxi operator

Organizations like these can provide the early success stories needed by the EV industry to compete against the incumbent gas-powered vehicles in the multi billion dollar race for winning the hearts and budgets of vehicle buyers.

Thoughts?

Show Me the Money: Cost/Benefit Analysis Needed for Green Marketing

According to recent research from the Institute for Public Policy Research (IPPR), consumers in the United Kingdom are tired of hearing about climate change.  Despite acceptance of climate change as a growing problem, people don't want to be told to do their share by cutting carbs out of their personal carbon footprints. The report recommends that green marketing campaigns focus on cost-savings benefits of low carbon products, rather than rely on an environmental appeal.

On this side of the pond, a similar attitude prevails among both consumers and organizations which should inform how green products and services are marketed and sold.  While the need for global action to address climate change has gained broad acceptance, the willingness to change local behavior and, more importantly, to dig into personal or corporate budgets to fund green initiatives is driven more by a practical cost-benefit analysis than idealogy. The analysis typically considers both tangible ("hard") and intangible ("soft") benefits and costs but assigns more weight to tangible ones.  Green marketing must be able to demonstrate that the sum of the benefits sufficiently outweighs the sum of the costs. 

Here are examples of the kinds of benefits and costs associated with green energy solutions:

Benefits:

• lower bills for energy, waste and recycling storage and removal, operational or maintenance staff (hard benefits)
• faster and more consistent heating & cooling (mainly soft benefits) 
• better reputation for social or corporate responsibility inside and outside the entity (soft benefit)
• reduced liability for violating air and water pollution regulations (soft and hard benefits)

Costs:

• upfront purchase or project price (hard costs)
• ongoing operational and maintenance charges such as financing, fuel, repairs, administration (hard costs)
• time, effort, and expertise needed to investigate, select, and start using it (soft and hard costs)

Let's take a look at green IT to see what motivates organizations to act.  Few organizations are willing to spend much money just to improve their reputations among workers or the public.  What does motivate organizations is the ability to reduce costs.  The energy needed to power and cool computer server and storage equipment in datacenters represents significant costs.  Green IT solutions such as server consolidation through virtualization and switching to servers and networking equipment that consume less power and generate less heat are a win-win for the IT budget and for the environment.

Now let's take a look at efficient cars to see what motivates individuals or businesses to act.  Only a limited segment of the population is willing to pay $5-20K extra for a car especially if it has reduced mileage, passenger, or storage capacity just to be a good green citizen.  The cost differential between a traditional gas car and a hybrid, plug-in electric or fuel cell car must be small enough to enable the customer to recover the difference through fuel savings within the anticipated period of ownership, say 5-7 years.  This is easier when gas prices are high and are headed even higher.

Given the emerging nature of green products and services, two additional considerations need to be addressed.  First, is the green product or service available to be examined or "test driven" and purchased in a convenient venue connected with an existing supplier or partner?  Second, is the green solution a straight forward substitute for something that the customer already plans to buy or replace?  If the answer to either question is no, then demonstrating a favorable cost-benefit analysis will be harder and marketing will need to be even more creative and targetted to show that the green solution fits in today's marketplace.

Thoughts?

Solar Panels Made in the USA Need the Right Government Tax Incentives

In an Op-Ed column in today's NY Times, Thomas Friedman describes the problem of a major maker of machines that make solar panels not having a single customer plant in the United States. While there are solar panel factories in the United States, he is right on the mark in pointing out the threat to the U.S. economy, jobs, and global competitiveness in not having more domestic manufacturing capabilities. His proposed solution is to have the United States adopt the kind of customer incentives for deploying solar that is present in other countries to drive greater purchasing of solar panels in the United States.

Where the analysis and proposal in his column fall a bit short is in not acknowledging the wage/cost factor. The top reason why companies choose to locate manufacturing plants outside of the United States is because of the desire to take advantage of lower manufacturing costs based on lower wages, worker benefits, safety and environmental regulatory compliance. To be competitive in a global marketplace, companies are business driven to squeeze as much cost as possible out of every unit produced. What's the United States to do?

One possible solution would be to impose tariffs on imported solar panels. However, this could violate international trade agreements and result in other countries retaliating by imposing tariffs on U.S-made solar and higher volume products. It would also hurt customers choosing imported products because they would have to pay more.

A better solution would be to let the market determine the prices of domestic and imported solar panels without imposing any import tariffs. However, the United States should balance the playing field by providing customers with added financial incentives to buy domestic by offering higher tax credits for solar panels produced in the United States. Massachusetts did just this with panels produced in the state in its tax credit incentive for solar PV systems made in Massachusetts. This type of indirect subsidy of domestic solar panels would bolster the manufacturing tax incentives already available to any U.S. or foreign company manufacturing in the United States.

Thoughts?

Time to Innovate

How many of us have look around and asked yourself, "Why is it exactly that things are still being done the old way? Hasn't anybody noticed that things aren't working as planned?"

To be fair, the status quo often seems to be the easier, less risky path to take. Why choose an unproven path when most people stick to the well trodden path. Here's why. At best, the status quo represents what has worked in the past. At worst, it represents what we thought would work but never did. Either way, sticking to the status quo as the guiding principle for success in the future is as risky as driving a car while looking through the rear view mirror. That may work ok as long as the road ahead remains a straight as the road behind us. But the moment the road curves, we can end up in a ditch.

Commitment to innovation should be applied to every aspect of life, whether it be personal, political, economic, social, or religious. Innovation doesn't mean that everying must change but it does mean that everything must be reconsidered on a regular basis. Our analysis should look closely at what is working and what is not, and why. What is working should be kept, at least until the next review cycle. What is not working should be quickly and firmly replaced with a different approach that has a better chance of success.

Thoughts?