On Innovation

Last Thursday, I was involved in not one but two interesting meetings on the topic of innovation.

First, I attended a morning session held at the Center for Innovation and Growth at Baldwin-Wallace College, where the discussion focused on how Procter & Gamble (NYSE:  PG) had launched its “Connect and Develop” open innovation program to improve its ability to collaborate with outside partners in technology research and product development.

Of particular interest were the comments of Chris Thoen, P&G’s Managing Director of External Innovation and Knowledge Management.  Noting that P&G headquarters had long been considered “the Kremlin on the Ohio River” by outsiders seeking to partner with P&G, the former CEO A.J. Lafley had made it a priority for the company to reinvent itself by becoming the type of partner to others that the company itself wanted from its partners.  Breaking down the “Not Invented Here” syndrome was a major if predictable challenge, and Thoen expressed the phrase “Proudly Found Elsewhere and Applied With Pride” as the counterpoint the company sought to embody.  With 9,000 researchers, Thoen said that P&G probably could do anything it wanted internally — but not as fast, cheaply, or well as it could by reaching outside.  And, in the disciplines of interest to P&G, there were 2 million experts worldwide:  almost three orders of magnitude greater of resources than were available in-house.  Thoen also pointed out what he felt was the Moore’s Law of innovation — that a second deal with the same partner takes half the time and creates twice the value of the first — which revealed the accelerating returns resulting from productive partnering.

Perhaps Thoen’s presentation about P&G’s experience is more sizzle than steak, but assuming that P&G has in fact been successful in pulling off this transformation to a considerable extent, it would be nice to say that I’ve seen this degree of open innovation by players in the energy industry.  My experiences with large electric utilities, oil companies, equipment vendors, and engineering/construction firms — of a comparable magnitude and global reach as P&G — have not been so encouraging in figuring out how to play nicely with outsiders.

The notion of how innovation plays out in the energy sphere brings me to the topic of my second meeting of the day, hosted at The Cleveland Foundation.  Spurred in large part by the leadership of Peter Teague at the Nathan Cummings Foundation, a gathering of about 40 people convened to discuss how to increase the impact of philanthopy’s role in energy debates.  As reflected in this article co-authored by Teague, philanthropic involvement in energy debates has largely focused heretofore on the need for climate change policy to address environmental considerations, and now is seemingly at a dead-end in the face of the collapse of prospects for cap-and-trade legislation, but a different and hopefully more fruitful path may be able to muster bipartisan support if the story is centered on the economic benefits associated with energy innovation.  

Jesse Jenkins of The Breakthrough Institute presented some of the key findings of his report “Where Good Technologies Come From”, which makes the compelling case that the Federal government has always — dating back to George Washington in 1792, and through Presidents of both parties to the present day — played a hugely important catalytic role in commercial innovation, even in technologies (e.g., the iPhone) that seem on the surface to have been developed solely by “the free market”.  Teryn Norris of Americans for Energy Leadership discussed the recent issuance of “Post-Partisan Power”, which was co-written by contributors from both The American Enterprise Institute and The Brookings Institution (“Dogs and cats living together!  Mass hysteria!”), and illustrates the potential for a consensus around a national energy policy — if the agenda is framed around the economy rather than the environment.

In my view, which I shared with the group, the biggest need in energy innovation is not new ideas but capital.  What philanthropy can do with its balance sheet its allocate some of their endowments towards investing in new energy innovation.  From a grantmaking perspective, it can support regional economic development efforts rooted in energy innovation — such as here in Northeast Ohio with NorTech Energy Enterprise, the Lake Erie Energy Development Corporation and the Great Lakes Energy Institute — and it can support advocacy in the public sector to encourage policies (such as tax credits on energy R&D) or other initiatives (such as ARPA-E) that facilitate the flow of more private sector capital to energy innovation.

P&G seems to demonstrate that big companies can dramatically improve via accelerated and amplified innovation.  P&G serves an intensely-competitive market, where customers can select or not select their products every day, so the company has come to recognize, with Thoen invoking Darwin in his commentary, that survival goes not to the strongest or the swiftest but to those that can best adapt.  To date, many aspects of the energy sector (particularly in the electricity industry) have largely been shielded from the imperative to innovate.  It is my belief that, if we can get the financial incentives right and can expose companies in the energy sector to the perils of undue comfort in the status quo, we can unleash immense innovation in energy — with large side-benefits to our economy and our environment.

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