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Giving Birth to a New Clean-Tech Industry: the Theory behind the Headlines

As the oil keeps gushing out into the Gulf of Mexico, the urgency to move to a clean tech economy mounts – just as it did when, in the wake of another oil spill off the coast of California, Richard Nixon established the Environmental Protection Agency back in 1970. Since then, progress has been frustratingly slow; the country’s enthusiasm has waxed and waned, as have the fates of numerous clean tech start-ups.

There’s a predictable reason for this pattern, and a way to escape it. Establishing a truly sustainable clean tech economy means not just inventing new technologies, but establishing an entire new industry. And there are rules for how new industries form.
As our colleague, Harvard Business School professor Clayton Christensen has explained, new industries founded on new technology platforms tend to be complex and expensive at first, as it takes the combined efforts of an organized group of highly skilled people to commercialize a breakthrough. So much is uncertain, so much unknown, that achieving success requires a high degree of centralization; organizations needs to control all the pieces of the puzzle so that they can optimize the offerings through careful, proprietary coordination.

Think of how in the early days of computing a company like IBM built entire mainframes, from the casing, to the chips, to the software. Since the industry was in its infancy and relatively little was understood about its underlying technologies and their interactions, the world-class scientists and executives at IBM needed to collaborate on all aspects of product design to deliver to market a top-notch, fully reliable offering. IBM was so good at this that it leveraged its expertise to achieve 70% share of the computer market throughout the ‘60s and ‘70s.

As time passes, though, the game changes. Once out in the market, the fog shrouding new technology platforms and their underlying business models begins to lift. Industry norms and standards emerge and eventually expertise becomes commoditized; you no longer need to hire a team of PhDs to figure out how all the various components of a technological system work together because the interactions are already defined. When this happens, an industry begins to decentralize; companies focus on optimizing specific components within a system, become world class in their niche, and then begin to disrupt the centralized, integrated providers through the delivery of more convenient, accessible, and cheaper products.

As computing matured and the mainframe gave way to the minicomputer to the PC, the industry fragmented: hardware companies like Compaq emerged to assemble the machines, chip companies like Intel provided the processors, and software companies like Microsoft programmed the operating system and various other applications. Before too long, as Christensen likes to point out, there was Michael Dell assembling a computer in his dorm room. A task that had previously required a massive company employing the world’s top computer scientists could now be accomplished by an enterprising college kid. What’s more, combining Intel’s engineers and Dell’s savvy business processes produced a more powerful and more affordable computer than any integrated provider could offer. Each wave of decentralization advances the industry as a whole.

The computer industry evolved from expensive mainframes to ubiquitous PCs on its own. But if, as a society, we want to make a deliberate shift to a new industry, we need to focus on more than technology innovation; we need to create the conditions under which a new industry can thrive. Plugging individual technologies into our existing oil-based infrastructure has not worked and probably will continue not to work. That’s because in clean tech, as at the birth of the computer industry, it’s not technologies that replace technologies, it is whole systems that replace systems. We are in the mainframe days of the clean tech industry – and we need an IBM equivalent with world-class expertise, strategy, and business-building capability to wrap its arms around the clean tech challenge and create a comprehensive solution.

Think about electric cars: their ultimate adoption will require not only new cars, but also advanced batteries, charging infrastructure, smart grids, and software applications that enable intelligent power management. Making a car alone, as many automakers are doing, would be like designing a hard drive in the 1950s. You could do it, but it wouldn’t be sufficient. And when someone else comes out with a tightly integrated system that optimizes the interfaces between each component, they’ll blow you out of the water.

That’s what makes the efforts of electric vehicle services company Better Place so important to watch: its particular model may or may not end up working, but it is one of the few ventures operating at the right scale – designing the entire mainframe, not just a microchip.

Mark W. Johnson is chairman and co-founder of innovation consulting and research firm, Innosight. He is the author of Seizing the White Space: Business Model Innovation for Transformative Growth and Renewal, to be published in February 2010 by Harvard Business Press and a co-author of The Innovator’s Guide to Growth (Harvard Business Press, July 2008). Josh Suskewicz is a manager at Innosight where he has worked on consulting engagements in numerous industries, specializing in cleantech and healthcare.

Josh Suskewicz
Josh Suskewicz is a manager at Innosight where he has worked on consulting engagements in numerous industries, specializing in cleantech and healthcare.
 
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