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PROFESSOR: OK.

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We've been chatting up here
and taking up valuable time.

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We have the privilege today
to have Donald Lessard--

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Professor Donald
Lessard speaking.

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Don and I and
Professor [INAUDIBLE]

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taught this course the
previous prior two years.

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So he's been in here before.

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He's an expert on
international business,

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international finance, regular
finance and, of course,

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the Cuban revolution, which
he witnessed as a small boy.

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Don?

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DONALD LESSARD: Perfect start.

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OK.

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I wish I'd been with you all
term, but I'm glad I'm not.

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I'm on sabbatical this year.

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And I'm enjoying that.

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So I'm probably a bit rusty
in the classroom today.

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But I hope we'll
have a good time.

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I'm going to talk about
innovation and energy business

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models.

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So that's a big mouthful.

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We're trying to get a lot of
things done in one session.

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But it's-- where I really
want to go is to make you

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comfortable with, focus on--
these are the big questions.

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The first question always is
what problem are we solving?

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What's the value proposition?

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What problem are we
solving for whom?

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How?

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How will we monetize it?

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How will we turn
it into a business?

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What's the best business
model to do that--

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second question.

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And we're not going
to answer all of that.

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But I want to give you a little
sense of which kinds of energy

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innovations lend
themselves to startups,

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which kinds of
energy innovations

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have to be undertaken by large
incumbent firms, which ones

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might be undertaken by new,
big pioneering firms, which

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ones require consortia-- right?

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So how big, what
kind of structure

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has to carry a particular
type of innovation

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forward because energy is
a very complicated space.

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Then this is something
we will not completely

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deal with in this session,
but I'll start on--

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and you've been talking
about a lot already--

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under what circumstances
will the innovation

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you're focusing on be viable?

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And who and what
has to change for it

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to work because that's
the primary question.

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You've got a better light bulb.

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Who is going to have to
change for it to work?

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What are the various barriers
to change going to be?

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You looked at Hexion and
you look at biofuels.

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You've got questions
within the firm.

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You have questions
with the customer.

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You have questions
within the industry.

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You have questions
with regulation.

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You have questions with
societal attitudes.

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So which of those
things have to change.

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And that takes you back
to the business model

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because the business
model very often

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will be not only about
producing the thing,

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but also bringing
about the change that's

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required so that the thing will
be viable in the marketplace.

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So that may really complicate
the notion of a business model.

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And finally, the
standard strategy

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questions-- what capabilities--
what do you have to be good at?

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What scale?

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What scope?

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What various activities do
you have to be involved in?

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And where do you have to be?

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And that's for
another session later.

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Where do you have to
be to make this work?

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And of course, the
answer is it all depends.

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I'd say it depends
on many things,

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but I'm going to focus
on really the first two.

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And they're related.

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They're slightly different
concepts, but they're related.

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It depends upon the
maturity of the technology.

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And it depends upon whether
the innovation is disruptive

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or not.

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So we need to start doing some
classification of the nature

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of the technology, the
nature of the innovation

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to understand what kind of
business models might work.

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OK?

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So far.

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And then I'm going to talk a bit
about innovation games, which

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is a nice way to think about
different types of innovation

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processes.

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It's some new work being
done by a friend of mine.

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And then we'll end with some
innovation business models.

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OK.

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So technology maturity--
you read the paper.

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Here you can do this
with a rising S curve

00:04:27.290 --> 00:04:29.090
or you can do this
with this falling curve

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in terms of rate of innovation.

00:04:31.400 --> 00:04:34.125
But there is a sense
that most technologies

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go through these three phases.

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What's the statement in Genesis,
"without form and void?"

00:04:47.310 --> 00:04:48.800
So it's without form and void.

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And there may be some
sense of an unmet need.

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And there are lots of different
solutions being brought about.

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Nobody's quite
sure how to do it.

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There are entrants in
all kinds of places.

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It's a zoo.

00:05:01.460 --> 00:05:04.220
It's highly fluid.

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There is no clear sense
about which the best products

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or technologies, or even
what categories sometimes

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the products or
services fit into.

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PROFESSOR: Warren Buffett
talked about 2,000 automobile

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manufacturers circa 1910.

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DONALD LESSARD: Yeah.

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PROFESSOR: Everybody with a
different way to get rich.

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DONALD LESSARD: So
automobiles took off.

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Yeah.

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2,000 automobile
manufacturers in the US.

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By-- what-- 1933, you'd
probably slimmed down to 16.

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Now we're back to-- what--

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eight maybe, but with
three based in the US.

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Big consolidation over time.

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Fluid phase--
everybody is at it.

00:05:40.850 --> 00:05:46.610
Transitional phase-- it's
starting to take shape.

00:05:46.610 --> 00:05:50.210
And then the mature
phase-- it's consolidated.

00:05:50.210 --> 00:05:53.600
And it's really blocking, and
tackling, and tough competition

00:05:53.600 --> 00:05:55.160
on an operational basis.

00:05:55.160 --> 00:05:57.080
And it's largely scale-based.

00:05:57.080 --> 00:05:58.220
It's Comcast, right?

00:05:58.220 --> 00:06:02.480
[LAUGHS] So you think about
communications and internet

00:06:02.480 --> 00:06:03.950
and all those things.

00:06:03.950 --> 00:06:06.260
We've got some mature
monopolists over here

00:06:06.260 --> 00:06:07.610
with regulatory capture.

00:06:07.610 --> 00:06:08.960
And that's mature phase.

00:06:08.960 --> 00:06:10.940
But we've got all kinds
of new stuff going on

00:06:10.940 --> 00:06:13.250
in the same time and a
number of transitional things

00:06:13.250 --> 00:06:15.030
going on at the same time.

00:06:15.030 --> 00:06:19.760
And energy is particularly
lively this way.

00:06:19.760 --> 00:06:21.960
Again, from the
paper-- fluid phase.

00:06:21.960 --> 00:06:22.460
Right?

00:06:22.460 --> 00:06:26.570
A lot of uncertainty.

00:06:26.570 --> 00:06:27.350
This is important.

00:06:27.350 --> 00:06:29.780
A high rate of
product innovation

00:06:29.780 --> 00:06:33.530
and high degree of
process flexibility

00:06:33.530 --> 00:06:36.420
means people do things
lots of different ways.

00:06:36.420 --> 00:06:38.420
It's almost craft industry.

00:06:38.420 --> 00:06:39.840
One company does it one way.

00:06:39.840 --> 00:06:41.420
Another company
does it another way.

00:06:41.420 --> 00:06:44.060
You really haven't scaled it.

00:06:44.060 --> 00:06:47.270
You produce the product or
service however you can.

00:06:47.270 --> 00:06:51.890
Demand is taking off, but
still a slow total volume.

00:06:51.890 --> 00:06:53.300
This is important.

00:06:53.300 --> 00:06:56.540
Not always the case,
but what does that

00:06:56.540 --> 00:06:59.838
tell you about who's buying
the product in this phase?

00:06:59.838 --> 00:07:01.880
Functionality is more
important than brand names.

00:07:01.880 --> 00:07:05.220
Who's buying the product?

00:07:05.220 --> 00:07:07.740
Who would care more about
functionality than brand name?

00:07:12.270 --> 00:07:15.990
Think about it in terms
of computers or internet.

00:07:15.990 --> 00:07:17.550
Somebody who really
knows the stuff.

00:07:17.550 --> 00:07:18.050
Right?

00:07:18.050 --> 00:07:21.430
Somebody who knows the
functionality, is a lead user,

00:07:21.430 --> 00:07:24.090
is really into what it does.

00:07:24.090 --> 00:07:25.260
Don't tell me who makes it.

00:07:25.260 --> 00:07:26.760
Tell me exactly what it does.

00:07:26.760 --> 00:07:27.260
Right?

00:07:27.260 --> 00:07:31.690
So you get the techies of that
particular product into it.

00:07:31.690 --> 00:07:36.390
So the early emergence
of an electrical car

00:07:36.390 --> 00:07:39.630
or the early emergence
of some other new product

00:07:39.630 --> 00:07:42.300
may be much more
about the intricacies

00:07:42.300 --> 00:07:44.910
of that particular
product because you've

00:07:44.910 --> 00:07:46.800
got a set of people
who are fascinated

00:07:46.800 --> 00:07:48.200
with the functionality.

00:07:48.200 --> 00:07:48.900
Right?

00:07:48.900 --> 00:07:51.240
Later it becomes is it accepted?

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Is it a brand name?

00:07:52.140 --> 00:07:53.040
Is it standard?

00:07:53.040 --> 00:07:56.940
So this is saying that
the markets are different.

00:07:56.940 --> 00:08:01.090
The nature of what's going on
in the firm is as we go across.

00:08:01.090 --> 00:08:03.940
But also, the customer
behavior is different.

00:08:03.940 --> 00:08:05.190
And what are you trying to do?

00:08:05.190 --> 00:08:06.720
You try to develop
your technology

00:08:06.720 --> 00:08:09.180
and you're trying
to hang on to it

00:08:09.180 --> 00:08:11.970
because you're inventing
new ways to satisfy

00:08:11.970 --> 00:08:13.560
some unmet need.

00:08:13.560 --> 00:08:15.734
You're going to try
to cash in on that.

00:08:15.734 --> 00:08:18.480
You know that there's
going to be a shakeout.

00:08:18.480 --> 00:08:20.940
You know there's going
to be a consolidation.

00:08:20.940 --> 00:08:24.720
You're trying to hang on either
to a market position or some IP

00:08:24.720 --> 00:08:25.740
or ideally both.

00:08:25.740 --> 00:08:26.280
Right?

00:08:26.280 --> 00:08:30.340
Now we get into a transitional
phase, dominant design.

00:08:30.340 --> 00:08:32.130
So think about bicycles in what?

00:08:32.130 --> 00:08:33.630
1880s?

00:08:33.630 --> 00:08:35.669
And they had one big
front wheel and they

00:08:35.669 --> 00:08:36.720
had a little small wheel.

00:08:36.720 --> 00:08:37.970
And they had two equal wheels.

00:08:37.970 --> 00:08:40.260
And some had chains
and some didn't.

00:08:40.260 --> 00:08:41.909
If you look in the old books--

00:08:41.909 --> 00:08:44.070
all kinds of designs.

00:08:44.070 --> 00:08:49.530
I don't know what year, but
probably mid 90s or maybe 1905

00:08:49.530 --> 00:08:54.450
or so the standard two wheel
bicycle with a seat position.

00:08:54.450 --> 00:08:58.060
The chain emerged as
the dominant design.

00:08:58.060 --> 00:09:00.660
Of course, there were other
companies making other designs.

00:09:00.660 --> 00:09:03.240
But most bicycle companies
were focused on that.

00:09:06.210 --> 00:09:08.070
What happens?

00:09:08.070 --> 00:09:11.100
It's a much better understanding
about what customers need.

00:09:11.100 --> 00:09:13.290
Much more process innovation.

00:09:13.290 --> 00:09:17.760
So in my global strategy
class one of my favorite cases

00:09:17.760 --> 00:09:19.625
to teach is Shimano.

00:09:19.625 --> 00:09:23.730
And we look at Shimano from
1921 through the present.

00:09:23.730 --> 00:09:27.870
And Shimono starts off in a
small village outside of Osaka.

00:09:27.870 --> 00:09:30.990
It actually is the village where
the samurai swords were made.

00:09:30.990 --> 00:09:34.073
So it has experience
with metal working.

00:09:34.073 --> 00:09:35.490
The bicycle is not
invented there.

00:09:35.490 --> 00:09:37.140
It's invented in France.

00:09:37.140 --> 00:09:42.090
2,000 bicycle shops
spring up in a year.

00:09:42.090 --> 00:09:45.960
Everybody's making bicycles
in their own shops.

00:09:45.960 --> 00:09:48.340
But as the dominant
design emerges

00:09:48.340 --> 00:09:50.550
and as you get
2,000 bicycle shops,

00:09:50.550 --> 00:09:52.170
Shimono figures
out that there are

00:09:52.170 --> 00:09:58.870
economies of scale in making
rear hubs and crank sets.

00:09:58.870 --> 00:10:01.750
Not in welding frames, not
in putting on handlebars,

00:10:01.750 --> 00:10:06.880
not in making bicycle seats, but
in making hubs and crank sets.

00:10:06.880 --> 00:10:08.530
And then they get
really good at that.

00:10:08.530 --> 00:10:10.460
They become codependent.

00:10:10.460 --> 00:10:10.960
Right?

00:10:10.960 --> 00:10:12.610
They become a
supplier of components

00:10:12.610 --> 00:10:14.110
to the whole industry.

00:10:14.110 --> 00:10:16.480
You still have a couple of
thousand bicycle makers,

00:10:16.480 --> 00:10:20.860
but you have one company that's
making the high scale economy,

00:10:20.860 --> 00:10:23.200
more high technology product.

00:10:23.200 --> 00:10:28.150
And they really start focusing
on process innovation.

00:10:28.150 --> 00:10:33.280
They find ways to make things
cheaper with the same quality.

00:10:33.280 --> 00:10:39.230
So they go from casting
to drop forging.

00:10:39.230 --> 00:10:41.470
Huge jump in quality.

00:10:41.470 --> 00:10:44.530
So process technology starts
becoming the differentiator

00:10:44.530 --> 00:10:48.700
because it allows me to
deliver the same product

00:10:48.700 --> 00:10:51.310
either at a lower cost or
with greater functionality.

00:10:51.310 --> 00:10:56.200
So back to the frontier you
were talking about last period.

00:10:56.200 --> 00:10:57.940
And so the competition
becomes much more

00:10:57.940 --> 00:11:01.150
about process and
scale and experience

00:11:01.150 --> 00:11:02.920
and becoming good at things.

00:11:02.920 --> 00:11:03.490
Right?

00:11:03.490 --> 00:11:08.620
And quality and availability
becomes the competition.

00:11:08.620 --> 00:11:10.900
The technological
capabilities of the firm

00:11:10.900 --> 00:11:13.780
are much less about
development, much more about

00:11:13.780 --> 00:11:16.450
manufacturability.

00:11:16.450 --> 00:11:19.390
Again, we've got a
large customer base.

00:11:19.390 --> 00:11:22.930
We probably have a
fairly strong brand.

00:11:22.930 --> 00:11:23.765
Mature phase.

00:11:26.590 --> 00:11:29.230
The product starts
commoditizing.

00:11:29.230 --> 00:11:31.900
There are more than enough
manufacturers for it.

00:11:31.900 --> 00:11:34.540
There's a more than
enough capacity for it.

00:11:34.540 --> 00:11:37.240
It's very hard to differentiate
your product from someone

00:11:37.240 --> 00:11:38.470
else's.

00:11:38.470 --> 00:11:40.150
More similarities
than differences.

00:11:40.150 --> 00:11:42.940
And filed products convergence
of project and process

00:11:42.940 --> 00:11:43.900
innovation.

00:11:43.900 --> 00:11:46.900
Really focused on cost
control, lean and efficient

00:11:46.900 --> 00:11:49.120
organization.

00:11:49.120 --> 00:11:54.040
Lean, tight, not waste a
penny, do everything right.

00:11:54.040 --> 00:11:55.720
Now just think about
the company that

00:11:55.720 --> 00:11:58.840
is in the mature phase how
ready it is now to engage

00:11:58.840 --> 00:12:01.930
in a new round of innovation.

00:12:01.930 --> 00:12:04.240
It's just squeezed
all of that out.

00:12:04.240 --> 00:12:06.550
If it's a single
product company,

00:12:06.550 --> 00:12:08.860
it's in a phase
of its life where

00:12:08.860 --> 00:12:11.470
it's really worried about
efficiency and production

00:12:11.470 --> 00:12:12.610
process.

00:12:12.610 --> 00:12:14.710
And it's pretty well forgotten.

00:12:14.710 --> 00:12:16.600
It's forgotten about
the innovation process.

00:12:16.600 --> 00:12:20.060
A classic example
was Volkswagen,

00:12:20.060 --> 00:12:22.870
which was a single product
company for many years.

00:12:22.870 --> 00:12:24.490
And the Bug became--

00:12:24.490 --> 00:12:27.207
the Beetle became
the dominant design.

00:12:27.207 --> 00:12:29.290
And it was out there and
it held up and it held up

00:12:29.290 --> 00:12:31.457
and it held up and they
kept producing and producing

00:12:31.457 --> 00:12:32.440
and producing it.

00:12:32.440 --> 00:12:34.240
Staying in that market.

00:12:34.240 --> 00:12:36.323
They forgot how to design a car.

00:12:36.323 --> 00:12:37.990
They forgot how to
bring in a new model.

00:12:37.990 --> 00:12:40.330
It took them a lot of
time to relearn that.

00:12:40.330 --> 00:12:40.990
Right?

00:12:40.990 --> 00:12:42.340
So you see this kind of cycle.

00:12:42.340 --> 00:12:44.590
This is common sense stuff.

00:12:44.590 --> 00:12:46.270
But if you look at
a technology, it's

00:12:46.270 --> 00:12:49.240
important to think
about where are you

00:12:49.240 --> 00:12:50.620
in the evolutionary period.

00:12:50.620 --> 00:12:54.430
Is this pre-fluid?

00:12:54.430 --> 00:12:56.140
You don't even know
what's going on.

00:12:56.140 --> 00:12:59.620
Is this fluid but it's
starting to take shape?

00:12:59.620 --> 00:13:02.260
Is this transitional
where you're

00:13:02.260 --> 00:13:04.793
beginning to see the
emergence of dominant designs

00:13:04.793 --> 00:13:06.460
and you're starting
to see the shake out

00:13:06.460 --> 00:13:10.690
and you're starting to see a few
firms take on strong positions.

00:13:10.690 --> 00:13:15.880
Or is this really mature, cost
based, quality based, brand

00:13:15.880 --> 00:13:20.440
based computation where the
big players win typically

00:13:20.440 --> 00:13:22.270
or the very focused players win?

00:13:24.850 --> 00:13:26.320
OK.

00:13:26.320 --> 00:13:29.620
So you've got it?

00:13:29.620 --> 00:13:32.800
Spend two or three
minutes-- five minutes--

00:13:32.800 --> 00:13:35.320
three minutes with the three
or four people around you.

00:13:35.320 --> 00:13:40.030
What I want is an example
of an energy technology

00:13:40.030 --> 00:13:42.160
at each stage of evolution.

00:13:42.160 --> 00:13:46.720
So again, something that
is just emerging, turmoil,

00:13:46.720 --> 00:13:48.970
something that is kind of
in a transitional stage

00:13:48.970 --> 00:13:51.640
where you can start seeing that
it's going to look this way

00:13:51.640 --> 00:13:54.130
but it's not quite
settled, and something

00:13:54.130 --> 00:13:56.050
where it's highly mature.

00:13:56.050 --> 00:13:58.840
It's head to head competition.

00:13:58.840 --> 00:14:03.310
So think about clean tech
products of a wide variety.

00:14:03.310 --> 00:14:10.570
And again, very importantly,
I'd say anywhere

00:14:10.570 --> 00:14:13.840
in the energy supply chain.

00:14:13.840 --> 00:14:20.200
So I tend to think of
primary energy, conversion,

00:14:20.200 --> 00:14:24.400
transmission,
distribution, end use.

00:14:24.400 --> 00:14:28.570
But now we have end
use in industry,

00:14:28.570 --> 00:14:32.770
residential, transport.

00:14:32.770 --> 00:14:34.700
And then, I guess,
we have Dick's area,

00:14:34.700 --> 00:14:39.070
which is how do we
balance that stuff?

00:14:39.070 --> 00:14:42.070
Or how do we balance
the whole thing if we

00:14:42.070 --> 00:14:44.590
include demand management?

00:14:44.590 --> 00:14:46.610
So that would be the
space we're looking at.

00:14:46.610 --> 00:14:49.930
So anything in that space--

00:14:49.930 --> 00:14:54.713
new technologies, innovative
technologies for--

00:14:54.713 --> 00:14:55.630
new is the wrong word.

00:14:55.630 --> 00:15:00.020
But technologies that are
coming into the marketplace

00:15:00.020 --> 00:15:02.720
or are in the marketplace
for primary energy, energy

00:15:02.720 --> 00:15:05.720
conversion, energy
transmission, storage, et cetera

00:15:05.720 --> 00:15:07.670
or for all kinds of end use.

00:15:07.670 --> 00:15:09.320
What stage would
you put them at?

00:15:09.320 --> 00:15:14.210
And within your group
give me one for each area.

00:15:14.210 --> 00:15:16.625
Give me fluid,
transitional, mature.

00:15:19.856 --> 00:15:24.080
AUDIENCE: So for the
[INAUDIBLE] different energy

00:15:24.080 --> 00:15:26.940
storage [INAUDIBLE] in the
grid, so for power [INAUDIBLE]..

00:15:26.940 --> 00:15:32.265
So, like, using
compressed air [INAUDIBLE]

00:15:32.265 --> 00:15:33.390
GUEST SPEAKER: So we have--

00:15:33.390 --> 00:15:35.753
not only do we have batteries
and very different kinds

00:15:35.753 --> 00:15:37.920
of battery technologies,
and we have compressed air,

00:15:37.920 --> 00:15:39.930
and we have flywheels,
and we actually

00:15:39.930 --> 00:15:42.450
have quite a few substitutes,
because we have fast start

00:15:42.450 --> 00:15:45.600
generators, and demand
management is actually

00:15:45.600 --> 00:15:51.000
a substitute if you think of
the balance, but it's a zoo.

00:15:51.000 --> 00:15:54.940
I've been trying to follow A123
with its grid level storage.

00:15:54.940 --> 00:15:59.250
And no one knows what the
dominant design is there.

00:15:59.250 --> 00:16:01.650
And is this to be used
for grid stabilization?

00:16:01.650 --> 00:16:04.320
Do you want to stick it out on
the end next to a wind farm?

00:16:04.320 --> 00:16:06.780
It's not known.

00:16:06.780 --> 00:16:09.400
It's all going on over in the
Department of Material Science.

00:16:09.400 --> 00:16:11.483
There are what, about six
different-- six or seven

00:16:11.483 --> 00:16:15.875
different competing companies,
or more, out of DMSE.

00:16:15.875 --> 00:16:17.460
AUDIENCE: [INAUDIBLE]

00:16:17.460 --> 00:16:19.680
GUEST SPEAKER: Right, like
Sadoway's swimming pools.

00:16:19.680 --> 00:16:23.154
OK a transitional?

00:16:23.154 --> 00:16:25.390
AUDIENCE: [INAUDIBLE]
as opposed to wind.

00:16:25.390 --> 00:16:25.890
Because--

00:16:25.890 --> 00:16:27.320
GUEST SPEAKER:
Which kind of wind?

00:16:27.320 --> 00:16:28.540
OK, let's put wind.

00:16:28.540 --> 00:16:29.040
Good.

00:16:32.850 --> 00:16:34.530
Why is it transitional?

00:16:34.530 --> 00:16:35.490
AUDIENCE: [INAUDIBLE]

00:16:35.490 --> 00:16:36.570
GUEST SPEAKER: Pardon?

00:16:36.570 --> 00:16:37.560
AUDIENCE: It
wouldn't be drive-by?

00:16:37.560 --> 00:16:38.520
GUEST SPEAKER: Yeah.

00:16:38.520 --> 00:16:41.070
No, so grid level wind--

00:16:43.950 --> 00:16:46.530
and again, if we were
drilling down a little bit,

00:16:46.530 --> 00:16:52.970
we'd find, I think, that
on-shore wind looks like it's

00:16:52.970 --> 00:16:55.200
starting to standardize.

00:16:55.200 --> 00:16:59.460
Off-shore wind is still very
much in the air in terms

00:16:59.460 --> 00:17:01.140
of the standard design.

00:17:01.140 --> 00:17:05.369
So you're somewhere in between.

00:17:05.369 --> 00:17:07.770
Although I guess there's
still some big transitions

00:17:07.770 --> 00:17:09.510
in the size of the blades.

00:17:09.510 --> 00:17:12.480
I look out my window in Vermont,
and I have 180 footers now.

00:17:12.480 --> 00:17:16.427
And they're going to build 480
footers, with strobe lights.

00:17:16.427 --> 00:17:18.510
AUDIENCE: So on-shore Is
beginning to standardize.

00:17:18.510 --> 00:17:20.302
GUEST SPEAKER: Right,
but that's the point.

00:17:20.302 --> 00:17:23.609
So the water is
starting to freeze.

00:17:23.609 --> 00:17:24.900
It's starting to congeal.

00:17:24.900 --> 00:17:27.450
It's starting to standardize.

00:17:27.450 --> 00:17:28.500
There's a real shift.

00:17:28.500 --> 00:17:32.310
Partly, the demand has
shrunk a little bit

00:17:32.310 --> 00:17:35.430
with European
financial difficulties,

00:17:35.430 --> 00:17:38.070
with uncertainties
about the US credits.

00:17:38.070 --> 00:17:42.060
And the Chinese have run through
a very quick ramp up, partly.

00:17:42.060 --> 00:17:45.880
But it's also starting
to consolidate.

00:17:45.880 --> 00:17:47.280
So it's OK-- mature--

00:17:47.280 --> 00:17:49.296
or mature?

00:17:49.296 --> 00:17:52.030
AUDIENCE: [INAUDIBLE]

00:17:52.030 --> 00:17:52.870
GUEST SPEAKER: Big--

00:17:52.870 --> 00:17:54.900
AUDIENCE: That's a very
interesting question.

00:17:54.900 --> 00:17:57.400
GUEST SPEAKER: You think today's
boiling water reactors will

00:17:57.400 --> 00:18:00.460
be the design used in 20 years?

00:18:00.460 --> 00:18:03.397
Right, so that's-- right.

00:18:03.397 --> 00:18:04.480
That's your question mark.

00:18:04.480 --> 00:18:06.580
So it's mature and
almost dead now.

00:18:06.580 --> 00:18:08.050
But if it comes
back to life, it's

00:18:08.050 --> 00:18:10.240
probably going to become
fluid for a little while.

00:18:10.240 --> 00:18:13.120
I hope not too fluid,
but anyway, OK.

00:18:13.120 --> 00:18:18.190
OK, team in the middle,
whoever you are?

00:18:18.190 --> 00:18:21.838
AUDIENCE: So for
fluid, you had--

00:18:24.616 --> 00:18:25.835
we'll say fuel cells.

00:18:25.835 --> 00:18:26.710
GUEST SPEAKER: Which?

00:18:26.710 --> 00:18:27.610
AUDIENCE: Fuel cells.

00:18:27.610 --> 00:18:28.693
GUEST SPEAKER: Fuel cells.

00:18:28.693 --> 00:18:34.270
Yeah, that may-- yeah,
that's pretty fluid.

00:18:34.270 --> 00:18:37.480
Maybe pre, but that's good.

00:18:37.480 --> 00:18:39.635
It's still largely in the labs.

00:18:39.635 --> 00:18:41.760
AUDIENCE: You gotta find
some way that doesn't need

00:18:41.760 --> 00:18:44.038
[INAUDIBLE].

00:18:44.038 --> 00:18:45.205
GUEST SPEAKER: Transitional?

00:18:45.205 --> 00:18:47.932
AUDIENCE: [INAUDIBLE]
solar [INAUDIBLE]??

00:18:47.932 --> 00:18:49.015
GUEST SPEAKER: Grid solar.

00:18:52.320 --> 00:18:54.120
Again, we start
drilling down, right?

00:18:54.120 --> 00:18:56.680
So the crystalline stuff
looks fairly mature.

00:18:56.680 --> 00:19:02.700
The thin film stuff
is probably fluid.

00:19:02.700 --> 00:19:07.620
The concentrated solar
is still probably fluid.

00:19:07.620 --> 00:19:08.980
So that's a good catch all.

00:19:08.980 --> 00:19:10.925
So let's just say grid.

00:19:10.925 --> 00:19:12.300
AUDIENCE: What's
nice about it is

00:19:12.300 --> 00:19:14.820
while you have a pretty
mature crystalline silicon

00:19:14.820 --> 00:19:20.550
technology in solar, you've got
all these other designs being

00:19:20.550 --> 00:19:21.960
worked on--

00:19:21.960 --> 00:19:24.660
Solyndra, et cetera,
and people are

00:19:24.660 --> 00:19:26.160
looking to increase efficiency.

00:19:26.160 --> 00:19:29.190
And if somebody hits
it, crystalline silicon

00:19:29.190 --> 00:19:30.000
gets displaced.

00:19:30.000 --> 00:19:32.125
GUEST SPEAKER: Well, and
you have everybody looking

00:19:32.125 --> 00:19:35.160
at the efficiency of the chip.

00:19:35.160 --> 00:19:39.145
And all that matters is
the installation cost.

00:19:39.145 --> 00:19:41.020
AUDIENCE: If you get
the chip more efficient,

00:19:41.020 --> 00:19:42.090
you don't have to have
as much installation,

00:19:42.090 --> 00:19:43.120
because you don't
take as much space.

00:19:43.120 --> 00:19:44.203
GUEST SPEAKER: It's still.

00:19:44.203 --> 00:19:45.570
Still.

00:19:45.570 --> 00:19:47.480
OK, I'll take a group over here.

00:19:47.480 --> 00:19:49.980
I don't know exactly where the
boundaries of the groups are,

00:19:49.980 --> 00:19:51.090
but I'll just take one.

00:19:51.090 --> 00:19:54.090
In the back on this side?

00:19:54.090 --> 00:19:55.632
AUDIENCE: You want
a mature one, or--

00:19:55.632 --> 00:19:57.340
GUEST SPEAKER: Well,
if you say the same,

00:19:57.340 --> 00:19:58.460
you just say the same.

00:19:58.460 --> 00:20:00.890
AUDIENCE: So for fluid,
we talked about, like,

00:20:00.890 --> 00:20:04.430
wave energy within the
ocean-- ocean wave energy.

00:20:04.430 --> 00:20:06.980
GUEST SPEAKER: And
that may be pre also,

00:20:06.980 --> 00:20:10.910
but it's starting to
merge, so ocean or wave.

00:20:10.910 --> 00:20:13.458
It's very early.

00:20:13.458 --> 00:20:15.750
AUDIENCE: We actually talked
about wind and solar, so--

00:20:15.750 --> 00:20:17.040
GUEST SPEAKER: Yep, OK.

00:20:17.040 --> 00:20:19.290
AUDIENCE: And mature, we
talked about, like, turbines,

00:20:19.290 --> 00:20:24.050
like a gas turbine, or
like a coal-fired plant,

00:20:24.050 --> 00:20:27.440
stuff like that.

00:20:27.440 --> 00:20:29.820
GUEST SPEAKER: Why is
it, with-- why is it

00:20:29.820 --> 00:20:33.960
that you're all focused here?

00:20:33.960 --> 00:20:35.490
If we're going to solve--

00:20:35.490 --> 00:20:38.310
if we're going to solve
the energy problem,

00:20:38.310 --> 00:20:41.700
we've got to knock a third
off the carbon footprint here,

00:20:41.700 --> 00:20:45.960
we've got to cut a third
of the inefficiency here,

00:20:45.960 --> 00:20:47.970
and we've got to cut
use here by a third.

00:20:47.970 --> 00:20:52.170
Why is it you're only
focusing on one of the three?

00:20:52.170 --> 00:20:54.978
OK, let's have
something over here.

00:20:54.978 --> 00:20:57.810
AUDIENCE: For fluid technology,
most of ours have been--

00:20:57.810 --> 00:20:59.740
we talked about WiTricity.

00:20:59.740 --> 00:21:01.300
And transitional--

00:21:01.300 --> 00:21:03.430
GUEST SPEAKER: Again, fluid was?

00:21:03.430 --> 00:21:05.535
AUDIENCE: WiTricity.

00:21:05.535 --> 00:21:06.670
It's a company--

00:21:06.670 --> 00:21:07.510
GUEST SPEAKER: OK,
what do they do?

00:21:07.510 --> 00:21:08.490
AUDIENCE: It's
kind of a start up.

00:21:08.490 --> 00:21:09.470
They developed the technology--

00:21:09.470 --> 00:21:11.840
[INAUDIBLE] develop the
technology [INAUDIBLE] that

00:21:11.840 --> 00:21:14.230
wirelessly transmits
electricity--

00:21:14.230 --> 00:21:14.990
GUEST SPEAKER: Ah!

00:21:14.990 --> 00:21:17.240
AUDIENCE: [INAUDIBLE]

00:21:17.240 --> 00:21:20.180
GUEST SPEAKER: OK, so wireless--

00:21:22.940 --> 00:21:24.080
yeah.

00:21:24.080 --> 00:21:26.660
Yeah, Tesla comes
back to life, right?

00:21:26.660 --> 00:21:28.017
OK, good.

00:21:28.017 --> 00:21:29.850
AUDIENCE: Transitional,
we talked about LEDs

00:21:29.850 --> 00:21:32.268
and solid state batteries.

00:21:32.268 --> 00:21:33.950
And we wanted to
separate batteries

00:21:33.950 --> 00:21:35.600
into several
categories, and argue

00:21:35.600 --> 00:21:38.030
that lead acid, lithium
ion and [INAUDIBLE]

00:21:38.030 --> 00:21:40.310
were more mature [INAUDIBLE].

00:21:40.310 --> 00:21:42.800
GUEST SPEAKER: Right, so
again, which kind of batteries

00:21:42.800 --> 00:21:43.894
do I have here?

00:21:43.894 --> 00:21:45.510
AUDIENCE: Solid state batteries.

00:21:45.510 --> 00:21:47.052
GUEST SPEAKER: Solid
state batteries,

00:21:47.052 --> 00:21:49.550
and here I have lead
acid batteries, right?

00:21:49.550 --> 00:21:54.957
So this is interest, and now
you're moving into the middle

00:21:54.957 --> 00:21:56.790
and at least towards
the end with those two.

00:22:00.320 --> 00:22:04.490
But it's interesting,
because the categories--

00:22:04.490 --> 00:22:10.040
you say, within an existing
broad category of technology

00:22:10.040 --> 00:22:12.470
you probably have
some of all of those--

00:22:12.470 --> 00:22:15.890
within wind, within
solar, within storage,

00:22:15.890 --> 00:22:17.300
within lighting.

00:22:17.300 --> 00:22:19.370
So you've got these
life cycles going on

00:22:19.370 --> 00:22:24.620
within classes of technology
as well as across.

00:22:24.620 --> 00:22:26.210
Anybody-- OK,
let's go over here.

00:22:26.210 --> 00:22:29.760
Anything radically different?

00:22:29.760 --> 00:22:30.260
No?

00:22:30.260 --> 00:22:35.440
OK, anybody who's got some
downstream examples-- something

00:22:35.440 --> 00:22:37.705
here, like what we use?

00:22:41.300 --> 00:22:42.652
Yeah?

00:22:42.652 --> 00:22:44.140
AUDIENCE: Converters?

00:22:44.140 --> 00:22:45.057
GUEST SPEAKER: Pardon?

00:22:45.057 --> 00:22:48.170
AUDIENCE: Switching [INAUDIBLE]
converters as transitional?

00:22:48.170 --> 00:22:51.200
GUEST SPEAKER: OK, tell
me a little bit more.

00:22:51.200 --> 00:22:53.708
For what kind of use?

00:22:53.708 --> 00:22:55.920
AUDIENCE: OK, so take a
look at your [INAUDIBLE]

00:22:55.920 --> 00:23:00.130
and whatever is in there.

00:23:00.130 --> 00:23:02.260
Often times, like,
old ones generally

00:23:02.260 --> 00:23:05.920
had transformers inside, and
then they're [INAUDIBLE]..

00:23:05.920 --> 00:23:08.230
But newer ones, which
are more efficient,

00:23:08.230 --> 00:23:15.292
tend to have that type
of electrical converter.

00:23:15.292 --> 00:23:17.500
GUEST SPEAKER: So power
supplies and power converters

00:23:17.500 --> 00:23:19.460
for all kinds of stuff?

00:23:19.460 --> 00:23:19.960
OK.

00:23:24.040 --> 00:23:25.300
Some of them--

00:23:25.300 --> 00:23:27.550
I mean, there clearly is--
there's a mature category

00:23:27.550 --> 00:23:29.140
of those, right?

00:23:29.140 --> 00:23:37.030
And then-- so power converters,
but there's also emerging

00:23:37.030 --> 00:23:39.980
better ways of doing this.

00:23:39.980 --> 00:23:41.890
I spent about a
day running around

00:23:41.890 --> 00:23:44.860
Delta Electronics in Taiwan,
and they're all over this.

00:23:44.860 --> 00:23:46.870
They are the power
converter guys.

00:23:46.870 --> 00:23:48.818
Yeah?

00:23:48.818 --> 00:23:51.160
AUDIENCE: Mature could
be a fluorescent light.

00:23:51.160 --> 00:23:52.150
GUEST SPEAKER: A what?

00:23:52.150 --> 00:23:54.820
Oh, fluorescent light, yeah.

00:23:54.820 --> 00:23:58.390
So now we have
fluorescent, right?

00:23:58.390 --> 00:24:00.610
It's not dead yet.

00:24:00.610 --> 00:24:03.088
It still has several
waves of innovation in it.

00:24:03.088 --> 00:24:04.630
It's still competitive
for some uses.

00:24:04.630 --> 00:24:06.910
But it's a mature technology.

00:24:06.910 --> 00:24:11.230
Although, I guess the drivers--

00:24:11.230 --> 00:24:12.820
the drivers for the
fluorescent light,

00:24:12.820 --> 00:24:17.360
there's some big changes
putting the drivers on a chip.

00:24:17.360 --> 00:24:19.440
Lowers the cost,
raises the efficiency.

00:24:19.440 --> 00:24:21.890
So if you get inside
the fluorescent light,

00:24:21.890 --> 00:24:26.090
there's some MIT professors
who have the new chips

00:24:26.090 --> 00:24:27.370
to drive them.

00:24:27.370 --> 00:24:28.160
Yeah?

00:24:28.160 --> 00:24:30.410
AUDIENCE: There's a different
way of approaching this.

00:24:30.410 --> 00:24:33.830
You wanted to discuss the final
third as well, so put habits

00:24:33.830 --> 00:24:37.160
in mature, because I don't see
much innovation in thinking

00:24:37.160 --> 00:24:39.397
about how you can [INAUDIBLE].

00:24:39.397 --> 00:24:41.730
GUEST SPEAKER: That is a very
interesting different way.

00:24:41.730 --> 00:24:43.340
So you'd say, what is it?

00:24:43.340 --> 00:24:45.090
And when we talk
about disruption,

00:24:45.090 --> 00:24:46.340
we'll talk about the customer.

00:24:46.340 --> 00:24:47.810
It was a nice
thing, saying here,

00:24:47.810 --> 00:24:50.840
we're talking about
hard stuff-- technology.

00:24:50.840 --> 00:24:54.060
But in fact, human behavior--

00:24:54.060 --> 00:24:56.030
human behavior could
be categorized,

00:24:56.030 --> 00:25:00.080
and institutional behavior could
be categorized in the same way.

00:25:00.080 --> 00:25:04.860
And our habits for
commuting and driving,

00:25:04.860 --> 00:25:06.840
and where we choose
to live, those things

00:25:06.840 --> 00:25:08.340
are pretty hard wired.

00:25:08.340 --> 00:25:12.570
Our habits regarding the use of
electricity, mental attitudes,

00:25:12.570 --> 00:25:13.680
probably pretty mature.

00:25:13.680 --> 00:25:19.980
We've been doing that
now for 100, 130 years--

00:25:19.980 --> 00:25:22.500
pretty mature habit.

00:25:22.500 --> 00:25:24.882
We've got some things
that are transitional.

00:25:24.882 --> 00:25:27.090
There may be some things
that are quite fluid, right?

00:25:27.090 --> 00:25:29.820
So this is-- so you could
apply a similar thinking

00:25:29.820 --> 00:25:32.220
structure to behaviors.

00:25:32.220 --> 00:25:33.720
This is focused on
technology, but I

00:25:33.720 --> 00:25:36.570
think you've all got the
point on any time you're

00:25:36.570 --> 00:25:41.160
looking at a technology, you
want to know where it's at.

00:25:41.160 --> 00:25:43.860
Because that's going to
tell you a lot about what's

00:25:43.860 --> 00:25:46.020
going to be required to
have a successful business

00:25:46.020 --> 00:25:48.590
model in that phase.

00:25:48.590 --> 00:25:50.330
OK, now we'll go on
to the next piece

00:25:50.330 --> 00:25:53.607
of this, which is
discontinuities or disruptive.

00:25:53.607 --> 00:25:54.440
And they're similar.

00:25:54.440 --> 00:25:56.090
And Hiram, maybe you
can straighten me out

00:25:56.090 --> 00:25:58.298
in terms of the difference
between these literatures.

00:25:58.298 --> 00:26:00.380
I view them as almost the same.

00:26:00.380 --> 00:26:04.100
But the point of kind of
discontinuities or disruptive

00:26:04.100 --> 00:26:04.920
change--

00:26:04.920 --> 00:26:07.190
so we've got some incumbent
technology, right?

00:26:07.190 --> 00:26:09.560
And it's gone through an
S curve of unit sales,

00:26:09.560 --> 00:26:12.170
and it's matured, and
it's leveling off.

00:26:12.170 --> 00:26:15.870
And a challenger comes in.

00:26:15.870 --> 00:26:18.620
Out of the fluid phase, it
starts really emerging--

00:26:18.620 --> 00:26:21.380
let's say, in the
transitional phase in here--

00:26:21.380 --> 00:26:23.300
it starts garnering some sales.

00:26:23.300 --> 00:26:26.270
It's probably not direct
competition at first.

00:26:26.270 --> 00:26:28.760
It may even be dismissed
as irrelevant, right?

00:26:31.560 --> 00:26:35.220
And over time, if
it's appropriate,

00:26:35.220 --> 00:26:37.750
it will supplant the
existing technology.

00:26:37.750 --> 00:26:42.000
So I gave you a
reading about Kodak,

00:26:42.000 --> 00:26:44.130
and a reading about
some of the difficulties

00:26:44.130 --> 00:26:46.110
that Kodak had in dealing with--

00:26:46.110 --> 00:26:50.560
this is film-based
based photography.

00:26:50.560 --> 00:26:53.110
Kodak wrote it from
the initial chemistry

00:26:53.110 --> 00:26:54.942
to pretty much
dominating the market.

00:26:54.942 --> 00:26:56.650
Although they did have
a little challenge

00:26:56.650 --> 00:26:58.067
from the Japanese
and the Germans.

00:26:58.067 --> 00:27:01.070
But they rode that
market very nicely.

00:27:01.070 --> 00:27:03.820
Now, we're in a totally
different world.

00:27:03.820 --> 00:27:07.890
Nobody uses film--
totally different product.

00:27:07.890 --> 00:27:10.100
And so you see these
cycles over and over again.

00:27:13.070 --> 00:27:15.425
I may be getting out
of line a little bit,

00:27:15.425 --> 00:27:17.300
but one of the things
you want to think about

00:27:17.300 --> 00:27:21.270
in these discontinuities
is who is having to change?

00:27:21.270 --> 00:27:22.520
This becomes a critical thing.

00:27:22.520 --> 00:27:25.310
So the question I'll
pose in two slides

00:27:25.310 --> 00:27:28.190
after I do this next
one is, discontinuous

00:27:28.190 --> 00:27:31.730
at what level,
disruptive at what level?

00:27:31.730 --> 00:27:33.900
Because you really
have to sort that out.

00:27:33.900 --> 00:27:36.920
But in order for
your opportunity

00:27:36.920 --> 00:27:38.980
to materialize, what
changes do you need?

00:27:38.980 --> 00:27:43.170
Do you need changes in
end user behavior/habits?

00:27:43.170 --> 00:27:44.660
Do you need changes in prices?

00:27:44.660 --> 00:27:50.420
Do I now need peak load pricing,
or do I need carbon pricing?

00:27:50.420 --> 00:27:54.440
Do I need a change in policies,
building codes, right?

00:27:54.440 --> 00:27:56.960
So a whole series
of things that may

00:27:56.960 --> 00:27:58.970
need to change, not
just my technology.

00:27:58.970 --> 00:28:02.360
My technology may be maturing,
but I may need behavior,

00:28:02.360 --> 00:28:05.270
I may need prices, I
may need regulation.

00:28:05.270 --> 00:28:07.160
And of course, we'll
come back to these.

00:28:07.160 --> 00:28:11.510
But you'll think about
which point you can lever.

00:28:11.510 --> 00:28:13.160
Let's look at this
point now, though.

00:28:13.160 --> 00:28:14.490
Disruptive to what?

00:28:14.490 --> 00:28:18.350
So we're trying to
classify a technology--

00:28:18.350 --> 00:28:22.700
an innovation-- as to whether it
will be disruptive or not, just

00:28:22.700 --> 00:28:25.910
because it's fun, but because
it gives us some notion of how

00:28:25.910 --> 00:28:28.700
we need to address it, and
what it will take to get it

00:28:28.700 --> 00:28:29.990
implemented.

00:28:29.990 --> 00:28:32.780
Is it disruptive
to the customer,

00:28:32.780 --> 00:28:35.480
to the firm, to
the incumbent firm,

00:28:35.480 --> 00:28:39.080
to the platform or
system, to the industry,

00:28:39.080 --> 00:28:41.840
to the regulatory context,
to the social acceptance

00:28:41.840 --> 00:28:42.620
and mindset?

00:28:42.620 --> 00:28:45.540
We're kind of going down
in levels of difficulty.

00:28:45.540 --> 00:28:51.140
So-- oh, that slide
turned out beautifully.

00:28:51.140 --> 00:28:52.970
But customer-- and
we could-- you've

00:28:52.970 --> 00:28:56.840
talked a bit about customers
taking on new products?

00:28:56.840 --> 00:28:59.170
AUDIENCE: [INAUDIBLE]

00:28:59.170 --> 00:29:01.750
GUEST SPEAKER: We
tend we tend to focus

00:29:01.750 --> 00:29:07.320
on the price and the
economics of a new energy use.

00:29:07.320 --> 00:29:09.070
And then, of course,
we get in an argument

00:29:09.070 --> 00:29:11.320
about whether people really
look at the current cost

00:29:11.320 --> 00:29:15.100
or whether they look
at the life cycle cost.

00:29:15.100 --> 00:29:17.980
But there are two
other issues, at least,

00:29:17.980 --> 00:29:21.610
that go along with that price
and that price calculation--

00:29:21.610 --> 00:29:23.380
new behaviors or competencies.

00:29:23.380 --> 00:29:25.450
Do I have to start acting
in a different way?

00:29:25.450 --> 00:29:28.660
Does this require that
I undo some habits

00:29:28.660 --> 00:29:30.980
to use this new product?

00:29:30.980 --> 00:29:34.340
If it does, I've got a
much harder sell, right?

00:29:34.340 --> 00:29:37.817
And I have to think, this
is not marketing my product.

00:29:37.817 --> 00:29:39.650
This is getting you to
change your behavior.

00:29:39.650 --> 00:29:40.970
That's one issue.

00:29:40.970 --> 00:29:44.330
Or the other, of
course, is does it

00:29:44.330 --> 00:29:47.180
require new system complements?

00:29:47.180 --> 00:29:50.820
Do I have to have other
goodies to go along with it?

00:29:50.820 --> 00:29:53.840
So you give me some device for--

00:29:53.840 --> 00:29:57.110
I don't know--
controlling the heat--

00:29:57.110 --> 00:29:59.330
the air conditioning in my unit.

00:29:59.330 --> 00:30:02.212
I also need, obviously,
the controls on the pieces.

00:30:02.212 --> 00:30:04.670
And I probably need that to be
hooked in with my cell phone

00:30:04.670 --> 00:30:06.980
so I can do it from a distance.

00:30:06.980 --> 00:30:11.280
I need an infrastructure
that intercommunicates.

00:30:11.280 --> 00:30:13.410
So think about the customer.

00:30:13.410 --> 00:30:15.870
You've got a product for them.

00:30:15.870 --> 00:30:17.820
You say, this is a new
and improved product.

00:30:17.820 --> 00:30:21.980
It's going to save
you energy, and/or

00:30:21.980 --> 00:30:23.730
it's going to reduce
the carbon footprint.

00:30:23.730 --> 00:30:26.320
Hopefully, it's going
to do both of those.

00:30:26.320 --> 00:30:28.030
And so you should
buy this product.

00:30:28.030 --> 00:30:30.960
And if you do a careful
lifecycle calculation, which

00:30:30.960 --> 00:30:34.080
you probably won't do, you
may find that this product

00:30:34.080 --> 00:30:35.670
is attractive.

00:30:35.670 --> 00:30:38.060
You still have to think
about, am I going to use it?

00:30:38.060 --> 00:30:41.340
What do I have to
do differently?

00:30:41.340 --> 00:30:45.513
And am I going to have to change
out a bunch of other stuff?

00:30:45.513 --> 00:30:47.680
Because the critical point
about energy-- and you've

00:30:47.680 --> 00:30:49.720
seen this over and
over again-- is

00:30:49.720 --> 00:30:52.990
this is the installed-base
industry to kill for, right?

00:30:52.990 --> 00:30:58.250
It's got huge installed
base of complementary stuff.

00:30:58.250 --> 00:31:00.400
So you're wiring,
your appliances,

00:31:00.400 --> 00:31:03.910
everything in your house are
all built in a particular way.

00:31:03.910 --> 00:31:06.720
To change that is a big job--

00:31:06.720 --> 00:31:08.820
kind of scary job.

00:31:08.820 --> 00:31:11.160
OK, so I'm not going to go
too deeply on the customer

00:31:11.160 --> 00:31:13.690
today, because I didn't give
you any readings on that.

00:31:13.690 --> 00:31:15.410
But I think that's
the primary one.

00:31:15.410 --> 00:31:15.910
Yeah?

00:31:15.910 --> 00:31:19.470
AUDIENCE: [INAUDIBLE]
when you think

00:31:19.470 --> 00:31:22.080
of disruptive innovation,
actually, in some ways,

00:31:22.080 --> 00:31:23.768
[INAUDIBLE].

00:31:23.768 --> 00:31:25.310
innovation, it comes
from the bottom.

00:31:25.310 --> 00:31:27.820
So the transistor radio
is a classic example.

00:31:27.820 --> 00:31:31.110
So when [INAUDIBLE]
patent transistor radios.

00:31:31.110 --> 00:31:33.207
But the point was
transistor radios

00:31:33.207 --> 00:31:35.540
were something that teenagers
could take in their rooms,

00:31:35.540 --> 00:31:38.233
listen to radio stations, so
they don't have to sit around

00:31:38.233 --> 00:31:39.650
the living room
with their parents

00:31:39.650 --> 00:31:41.750
and put on the big tube radio.

00:31:41.750 --> 00:31:44.120
The point is is that it
was [INAUDIBLE] disruptive

00:31:44.120 --> 00:31:44.860
to the teenagers.

00:31:44.860 --> 00:31:46.145
As a matter of fact,
they got privacy.

00:31:46.145 --> 00:31:48.245
[INAUDIBLE] the quality of
the reception was pretty poor,

00:31:48.245 --> 00:31:49.610
and the quality of the
sound was pretty poor.

00:31:49.610 --> 00:31:51.630
But this was a very
expensive technology.

00:31:51.630 --> 00:31:55.580
You know, the same way that all
of you adopted social media,

00:31:55.580 --> 00:31:57.470
it's a very simple method.

00:31:57.470 --> 00:32:00.650
To a lot of people that are used
to not doing that, much more

00:32:00.650 --> 00:32:01.360
disruptive.

00:32:01.360 --> 00:32:04.065
So in many ways, when
you think of a project

00:32:04.065 --> 00:32:05.690
that you're working
on for your papers,

00:32:05.690 --> 00:32:08.750
for example, you can think of
disruptive innovation in ways

00:32:08.750 --> 00:32:12.005
that you can of find a
customer that is actually,

00:32:12.005 --> 00:32:15.500
in many ways is a very simple
way-- almost too simple a way

00:32:15.500 --> 00:32:18.317
to get there, and then it
disrupts from the bottom.

00:32:18.317 --> 00:32:20.150
So it disrupts the
marketplace, but it's not

00:32:20.150 --> 00:32:22.108
necessarily disruptive
for the individual who's

00:32:22.108 --> 00:32:23.720
going to take it up.

00:32:23.720 --> 00:32:25.760
GUEST SPEAKER:
Well, in fact, the--

00:32:25.760 --> 00:32:30.120
if you like, the disruption may
be desired by your customer.

00:32:30.120 --> 00:32:32.990
So "disruptive" sounds
like this is negative.

00:32:32.990 --> 00:32:36.620
So all of the family had
to sit around the single TV

00:32:36.620 --> 00:32:40.520
set or the single radio set, and
the parents may have liked that

00:32:40.520 --> 00:32:43.100
or may not have liked that,
depending upon their style.

00:32:43.100 --> 00:32:46.040
But certainly,
there were customers

00:32:46.040 --> 00:32:48.590
who wanted to get away from
that, who wanted privacy,

00:32:48.590 --> 00:32:49.820
wanted to go their own rooms.

00:32:49.820 --> 00:32:53.980
So you say, this is disruptive
for the existing family habits.

00:32:53.980 --> 00:32:56.000
But the question is,
is there a segment

00:32:56.000 --> 00:32:58.610
that finds this
disruption attractive?

00:32:58.610 --> 00:33:01.460
I'm just trying to open up
this concept of disruption

00:33:01.460 --> 00:33:03.248
at all of these
different levels,

00:33:03.248 --> 00:33:04.790
because we tend to
think of it, is it

00:33:04.790 --> 00:33:07.250
disruptive to the
incumbent firm?

00:33:07.250 --> 00:33:11.030
But that's only one of
the many considerations,

00:33:11.030 --> 00:33:15.860
and should not be a negatively
or positively loaded term.

00:33:15.860 --> 00:33:17.690
It's a descriptive term.

00:33:17.690 --> 00:33:18.890
Is it disruptive?

00:33:18.890 --> 00:33:21.980
Does it require certain
types of changes?

00:33:21.980 --> 00:33:24.170
And very often, does
it require changes

00:33:24.170 --> 00:33:26.660
in a complementary
set of activities?

00:33:26.660 --> 00:33:28.940
And then, what are
those changes required?

00:33:28.940 --> 00:33:32.120
So not how do we make it,
but what changes will be

00:33:32.120 --> 00:33:34.430
required so that it is adopted?

00:33:34.430 --> 00:33:36.860
And that will often be a more
central part of the business

00:33:36.860 --> 00:33:38.540
model than how do we make it.

00:33:38.540 --> 00:33:39.392
That's--

00:33:39.392 --> 00:33:41.000
AUDIENCE: Wind and solar are
interesting from that point

00:33:41.000 --> 00:33:41.500
of view.

00:33:41.500 --> 00:33:43.860
And we'll come back to
them week after next.

00:33:43.860 --> 00:33:47.630
But putting a lot of wind
in an electric power system

00:33:47.630 --> 00:33:50.520
requires a lot of changes in
other parts of the system.

00:33:50.520 --> 00:33:54.770
I mean, it's not disruptive
to people who get electricity.

00:33:54.770 --> 00:33:57.920
It's not disruptive to
people who are buying.

00:33:57.920 --> 00:33:59.720
It's disruptive to,
how you run the grid?

00:33:59.720 --> 00:34:01.310
GUEST SPEAKER:
Right, So if we push

00:34:01.310 --> 00:34:06.560
past, what, 6%, 8% in a deep
grid, in wind or solar, then

00:34:06.560 --> 00:34:08.510
it's disruptive to the grid.

00:34:08.510 --> 00:34:13.130
And it may be disruptive-- it's
probably going to be disruptive

00:34:13.130 --> 00:34:15.110
the economic model of the grid.

00:34:15.110 --> 00:34:17.090
Because how do you recover
the additional costs

00:34:17.090 --> 00:34:24.257
associated with having the depth
to deal with the intermittency?

00:34:24.257 --> 00:34:29.620
Or you could say, wind has
to have storage at source

00:34:29.620 --> 00:34:33.409
so that its interaction with
the grid is smooth, right?

00:34:33.409 --> 00:34:34.850
That's happening in some places.

00:34:34.850 --> 00:34:36.820
AUDIENCE: Then you're not
going to have much wind.

00:34:36.820 --> 00:34:38.862
GUEST SPEAKER: No, no,
A123 is actually in Chile,

00:34:38.862 --> 00:34:39.650
they've got this.

00:34:39.650 --> 00:34:42.020
So you've got wind farms
way the hell away, right?

00:34:42.020 --> 00:34:44.630
If you've got a wind form a
long way away from a population

00:34:44.630 --> 00:34:47.239
center, then your
problem is you're

00:34:47.239 --> 00:34:49.847
going to have to build a
very high capacity line

00:34:49.847 --> 00:34:51.139
to deal with the intermittency.

00:34:51.139 --> 00:34:54.350
It becomes economic to put grid
level storage at the wind farm

00:34:54.350 --> 00:34:57.200
tuned to the wind farm
so that it can then

00:34:57.200 --> 00:34:59.150
feed through the line
on a steady basis.

00:34:59.150 --> 00:35:00.020
And now, it's not--

00:35:00.020 --> 00:35:03.470
but now, it's disruptive
in that wind farm has

00:35:03.470 --> 00:35:06.170
to combine storage, right?

00:35:06.170 --> 00:35:08.150
So it's a more
complex business model

00:35:08.150 --> 00:35:11.740
to avoid the
disruption to the grid.

00:35:11.740 --> 00:35:14.860
So general point--
any technology

00:35:14.860 --> 00:35:18.220
you think about, you need to
think of the various points

00:35:18.220 --> 00:35:20.710
at which it may be disruptive.

00:35:20.710 --> 00:35:22.570
And not saying
disruptive is bad,

00:35:22.570 --> 00:35:26.140
but rather to focus on who is
going to have to change how,

00:35:26.140 --> 00:35:28.180
and will they have the
incentives to do so,

00:35:28.180 --> 00:35:32.120
and how could you work on those
incentives for them to do so?

00:35:32.120 --> 00:35:35.990
It's just a way of
thinking about the process.

00:35:35.990 --> 00:35:40.440
OK, incumbent firm's
capacity to change.

00:35:40.440 --> 00:35:42.900
This is the
Christiansen article.

00:35:42.900 --> 00:35:45.890
Would one of you
like to tell me--

00:35:45.890 --> 00:35:50.350
tell us all the Kodak story in
terms of those four quadrants?

00:35:50.350 --> 00:35:52.420
I just happened to pick
up the FT yesterday

00:35:52.420 --> 00:35:55.900
and had this beautiful story
ready for today's class, right?

00:35:55.900 --> 00:35:59.410
So we all know that
Kodak lost it, right?

00:35:59.410 --> 00:36:02.600
It dominated the film business.

00:36:02.600 --> 00:36:06.910
It was an early participant
in digital technology.

00:36:06.910 --> 00:36:08.410
It certainly had
the money to do it.

00:36:08.410 --> 00:36:10.118
It certainly had the
technology to do it.

00:36:10.118 --> 00:36:11.320
And it's nowhere, right?

00:36:11.320 --> 00:36:14.110
So it totally lost the score.

00:36:14.110 --> 00:36:16.000
And it had a
fantastic brand name.

00:36:16.000 --> 00:36:18.910
It had everything going for it--

00:36:18.910 --> 00:36:19.520
lost it.

00:36:19.520 --> 00:36:25.960
So what was it in
that story that--

00:36:25.960 --> 00:36:36.790
I guess the question would be,
does this framework even help,

00:36:36.790 --> 00:36:38.650
and how would we kind
of shoehorn that case

00:36:38.650 --> 00:36:41.698
into this framework?

00:36:41.698 --> 00:36:47.510
So did it fit with their
processes, capabilities--

00:36:47.510 --> 00:36:50.030
the one thing I'd add--
processes, capabilities,

00:36:50.030 --> 00:36:53.410
and relationships?

00:36:53.410 --> 00:36:56.320
Did digital fit with Kodak's--

00:36:56.320 --> 00:36:57.100
why not?

00:36:57.100 --> 00:36:57.860
How not?

00:36:57.860 --> 00:36:59.860
AUDIENCE: I mean, I guess,
for the longest time,

00:36:59.860 --> 00:37:02.830
they invested in
film technologies.

00:37:02.830 --> 00:37:04.690
And so--

00:37:04.690 --> 00:37:07.240
GUEST SPEAKER: We're chemists.

00:37:07.240 --> 00:37:10.390
You start off kind of at the
habit or people level, right?

00:37:10.390 --> 00:37:12.460
The high prestige
people in this firm

00:37:12.460 --> 00:37:16.060
are optics people and chemists.

00:37:16.060 --> 00:37:20.630
There are some really pretty
hairy stuff going on there.

00:37:20.630 --> 00:37:23.260
And those are-- so first of
all, the prestigious people,

00:37:23.260 --> 00:37:24.580
this is not prestigious.

00:37:24.580 --> 00:37:26.262
So that's a little
bit of an issue.

00:37:26.262 --> 00:37:28.720
And so it doesn't draw in the
chemical capabilities at all,

00:37:28.720 --> 00:37:31.180
or the filmmaking capabilities.

00:37:31.180 --> 00:37:36.250
Kodak was also a very advanced
manufacturing company.

00:37:36.250 --> 00:37:39.010
If you go on the Kodak plant,
it was what, a mile long--

00:37:39.010 --> 00:37:41.980
a continuous-- one
single, continuous machine

00:37:41.980 --> 00:37:46.600
to make all this film--
just a technical marvel.

00:37:46.600 --> 00:37:49.220
Again, digital cameras
have nothing like that.

00:37:49.220 --> 00:37:51.680
So there's not a deep
manufacturing capability.

00:37:54.750 --> 00:37:56.640
Selling capabilities--
putting them in stores

00:37:56.640 --> 00:37:58.400
ought to be about the same.

00:37:58.400 --> 00:38:00.180
Anything different
about the model

00:38:00.180 --> 00:38:02.430
between putting cameras
and film in stores

00:38:02.430 --> 00:38:05.490
versus digital
cameras in stores?

00:38:05.490 --> 00:38:05.990
What?

00:38:05.990 --> 00:38:08.570
AUDIENCE: Well, film is a
complement for a film camera.

00:38:08.570 --> 00:38:10.070
GUEST SPEAKER: Film
is a complement.

00:38:12.230 --> 00:38:15.650
You probably basically
subsidize or sell the camera

00:38:15.650 --> 00:38:19.040
at a very low cost, especially
the cheap cameras, right?

00:38:19.040 --> 00:38:22.160
There were disposable cameras
that basically cost nothing,

00:38:22.160 --> 00:38:24.740
because you're selling film.

00:38:24.740 --> 00:38:30.124
What's the complement that you
sell with digital photography?

00:38:30.124 --> 00:38:32.957
AUDIENCE: [INAUDIBLE]

00:38:32.957 --> 00:38:34.790
GUEST SPEAKER: You may
sell some complements

00:38:34.790 --> 00:38:36.580
in the internet in
terms of storage

00:38:36.580 --> 00:38:38.330
and in terms of social
media, but it's not

00:38:38.330 --> 00:38:40.070
within your same category.

00:38:40.070 --> 00:38:43.010
It's not even people you know.

00:38:43.010 --> 00:38:45.500
So I would very
quickly start saying,

00:38:45.500 --> 00:38:48.227
yeah, this would require Kodak
to be a very different place.

00:38:48.227 --> 00:38:50.060
On the other hand, they
do have a brand name

00:38:50.060 --> 00:38:53.240
that is associated
with images, right?

00:38:53.240 --> 00:38:55.220
They do have the
optics that are still

00:38:55.220 --> 00:38:57.330
very important in
digital photography.

00:38:57.330 --> 00:38:59.390
So they have some
relevant capabilities.

00:38:59.390 --> 00:39:01.250
They're not out of the game.

00:39:01.250 --> 00:39:03.250
But they don't have them all.

00:39:03.250 --> 00:39:07.280
How about the values
and time horizon?

00:39:07.280 --> 00:39:10.160
Did you pick up anything from
the story about values and time

00:39:10.160 --> 00:39:12.890
horizon?

00:39:12.890 --> 00:39:13.492
Yeah?

00:39:13.492 --> 00:39:15.200
AUDIENCE: I didn't
fit with their values,

00:39:15.200 --> 00:39:18.650
because the way that
Kodak had been, like,

00:39:18.650 --> 00:39:23.770
started by the founder
was just with film, right?

00:39:23.770 --> 00:39:26.090
They never talked about digital.

00:39:26.090 --> 00:39:28.533
I think that was
the problem when

00:39:28.533 --> 00:39:30.950
they were deciding whether or
not to go into [INAUDIBLE]..

00:39:30.950 --> 00:39:33.117
GUEST SPEAKER: It's almost--
that's identity, right?

00:39:33.117 --> 00:39:36.615
So is our identity images, or
is our identity photography?

00:39:36.615 --> 00:39:37.990
AUDIENCE: Yeah,
and they probably

00:39:37.990 --> 00:39:40.575
felt that if they
want to digital,

00:39:40.575 --> 00:39:42.575
they would lose, like, a
lot of their customers.

00:39:42.575 --> 00:39:46.665
Because they had always been
film, and then that's it.

00:39:46.665 --> 00:39:48.540
GUEST SPEAKER: Or that
they would cannibalize

00:39:48.540 --> 00:39:51.360
their customers
thinking that they alone

00:39:51.360 --> 00:39:53.340
owned the transition.

00:39:53.340 --> 00:39:54.900
It's a little bit
of hubris, right?

00:39:54.900 --> 00:39:56.442
Just because they
were a leading firm

00:39:56.442 --> 00:39:58.920
didn't mean that they
alone owned the transition.

00:39:58.920 --> 00:40:02.110
But let's get down to the
nitty gritty-- value and time

00:40:02.110 --> 00:40:02.610
horizons.

00:40:02.610 --> 00:40:04.890
How did Kodak
measure investments

00:40:04.890 --> 00:40:07.200
and the desirability
of investments?

00:40:07.200 --> 00:40:09.190
What did they-- it
was in the story.

00:40:09.190 --> 00:40:13.910
What did they judge investments
on, or businesses on--

00:40:13.910 --> 00:40:17.660
good business
versus bad business?

00:40:17.660 --> 00:40:18.160
Who's there.

00:40:18.160 --> 00:40:19.800
If you if you read
the story carefully

00:40:19.800 --> 00:40:21.925
from kind of a financial
or accounting perspective,

00:40:21.925 --> 00:40:23.320
it would have jumped out at you.

00:40:27.090 --> 00:40:33.650
Profit margin-- the difference
between sales price and cost.

00:40:33.650 --> 00:40:36.680
They were in a near monopolist
position with a mature product.

00:40:36.680 --> 00:40:40.010
They had very high
profit margins.

00:40:40.010 --> 00:40:41.450
Anything that
they're looking at,

00:40:41.450 --> 00:40:43.940
they're judging in
terms of profit margins.

00:40:43.940 --> 00:40:46.340
This new product, even
if eventually it's

00:40:46.340 --> 00:40:48.050
going to have a
high profit margin,

00:40:48.050 --> 00:40:50.120
will not have a
high profit margin.

00:40:50.120 --> 00:40:52.340
You've got to be
forward-looking, right?

00:40:52.340 --> 00:40:55.100
The company is looking at,
let's say, quarter-by-quarter

00:40:55.100 --> 00:40:58.040
at the current profitability
of the existing business.

00:40:58.040 --> 00:41:00.590
If you use that
optic on businesses

00:41:00.590 --> 00:41:03.380
which now fits the existing
business, no way in hell

00:41:03.380 --> 00:41:05.780
you're going to choose
this new business that's

00:41:05.780 --> 00:41:08.690
going to take five seven,
eight years to launch.

00:41:08.690 --> 00:41:11.540
And it's actually going to take
quite a long time to figure out

00:41:11.540 --> 00:41:14.390
what the complements
are that you reach into

00:41:14.390 --> 00:41:17.390
to get the extra profit, right?

00:41:17.390 --> 00:41:19.460
So if you look at
digital photography,

00:41:19.460 --> 00:41:21.650
I'm sure that a lot of money
is being made by people

00:41:21.650 --> 00:41:23.422
other than camera makers.

00:41:23.422 --> 00:41:25.880
There's a lot of value out--
there's a lot more photography

00:41:25.880 --> 00:41:26.380
being done.

00:41:26.380 --> 00:41:28.220
There's a lot more
being swapped.

00:41:28.220 --> 00:41:30.350
Granted, it's swapped
at lower costs.

00:41:30.350 --> 00:41:32.720
But I suspect it would be
interesting to go out and add

00:41:32.720 --> 00:41:37.310
up who all makes money
on Facebook, right?

00:41:37.310 --> 00:41:40.040
Facebook makes money.

00:41:40.040 --> 00:41:41.750
YouTube makes money.

00:41:41.750 --> 00:41:44.390
You have a whole series of
places that make money out

00:41:44.390 --> 00:41:48.420
of storing and swapping images.

00:41:48.420 --> 00:41:51.300
Some of that space might
have been Kodak's, right?

00:41:51.300 --> 00:41:53.295
They were in the image business.

00:41:53.295 --> 00:41:54.420
AUDIENCE: Well, they tried.

00:41:54.420 --> 00:41:55.860
They had an online--

00:41:55.860 --> 00:41:57.193
GUEST SPEAKER: Well, they tried.

00:41:57.193 --> 00:41:58.660
AUDIENCE: --processing service.

00:41:58.660 --> 00:42:02.430
GUEST SPEAKER: Point
is, companies evolve.

00:42:02.430 --> 00:42:06.720
Companies change with the
conditions they are in,

00:42:06.720 --> 00:42:08.580
with the pressures they're in.

00:42:08.580 --> 00:42:11.070
This was a company with
a very mature technology

00:42:11.070 --> 00:42:12.960
that it was driving.

00:42:12.960 --> 00:42:15.180
It had a couple of
tough competitors,

00:42:15.180 --> 00:42:16.680
so it worked quite
a bit about cost.

00:42:16.680 --> 00:42:18.420
But it still had nice margins.

00:42:18.420 --> 00:42:23.760
It had this fantastic scale and
quality-oriented manufacturing.

00:42:23.760 --> 00:42:26.130
It had brand name-based
distribution.

00:42:26.130 --> 00:42:27.960
It made most of its
money off the film,

00:42:27.960 --> 00:42:31.530
not off the cameras,
well-tuned business model,

00:42:31.530 --> 00:42:34.290
and you could judge
each different sector

00:42:34.290 --> 00:42:36.210
by profit margin.

00:42:36.210 --> 00:42:38.130
And along comes
this new business

00:42:38.130 --> 00:42:40.230
that is going to take
10 years to build.

00:42:40.230 --> 00:42:41.820
Come on, guys, right?

00:42:41.820 --> 00:42:43.210
We're not in the VC business.

00:42:43.210 --> 00:42:46.540
We're in the current
profitability business.

00:42:46.540 --> 00:42:49.830
So I think that puts a
little life into this figure.

00:42:49.830 --> 00:42:50.820
It's hard.

00:42:50.820 --> 00:42:54.340
It's very hard for incumbent
companies to change,

00:42:54.340 --> 00:42:55.710
especially--

00:42:55.710 --> 00:42:57.930
and we often talk
about the disadvantages

00:42:57.930 --> 00:43:01.780
of a company being diversified,
because it gets very confusing,

00:43:01.780 --> 00:43:03.360
it's not focused, et cetera.

00:43:03.360 --> 00:43:05.520
One of the advantages
may be that it

00:43:05.520 --> 00:43:08.190
may, in fact, house
technologies at all three

00:43:08.190 --> 00:43:09.870
stages of maturity.

00:43:09.870 --> 00:43:11.730
Because if the company
is predominantly

00:43:11.730 --> 00:43:14.250
at a mature stage,
it's going to have

00:43:14.250 --> 00:43:16.320
a very hard time
dealing with things

00:43:16.320 --> 00:43:17.940
at the transitional stage.

00:43:17.940 --> 00:43:19.740
Because everything
it's going to do

00:43:19.740 --> 00:43:22.230
is going to be tuned
to cranking it out,

00:43:22.230 --> 00:43:27.600
low cost, lean, manufacturing,
operations focus.

00:43:27.600 --> 00:43:29.880
The best parking lots
will belong to the sales

00:43:29.880 --> 00:43:31.740
managers and the
manufacturing managers,

00:43:31.740 --> 00:43:34.890
not the scientists and
the innovation folks,

00:43:34.890 --> 00:43:36.580
not even the engineers.

00:43:36.580 --> 00:43:38.460
So it's going to shift
who gets the parking

00:43:38.460 --> 00:43:39.538
lot-- who has the power.

00:43:39.538 --> 00:43:40.080
AUDIENCE: OK.

00:43:40.080 --> 00:43:41.226
Or you could do
it the other way.

00:43:41.226 --> 00:43:42.270
[INAUDIBLE] was
very finely-tuned

00:43:42.270 --> 00:43:44.062
tuned in a very-- in
a different direction,

00:43:44.062 --> 00:43:46.440
in that cost-oriented,
technology-oriented, focused

00:43:46.440 --> 00:43:49.860
on a segment, all built to
do-- to deliver top quality

00:43:49.860 --> 00:43:51.880
to a set of customers.

00:43:51.880 --> 00:43:53.990
Tough to turn that ship.

00:43:53.990 --> 00:43:55.890
Tough to turn that ship.

00:43:55.890 --> 00:43:58.560
GUEST SPEAKER: It's very
hard to be good without being

00:43:58.560 --> 00:44:00.330
finely-tuned.

00:44:00.330 --> 00:44:02.760
And if you're finely-tuned,
it's very hard to change.

00:44:02.760 --> 00:44:03.880
That's the whole story.

00:44:03.880 --> 00:44:06.220
There's nothing more
to it than that.

00:44:06.220 --> 00:44:08.220
Then, you can think about
the different elements

00:44:08.220 --> 00:44:09.010
of that change--

00:44:09.010 --> 00:44:11.640
and I think this is a
useful categorization--

00:44:11.640 --> 00:44:14.692
to make an assessment of
whether it's even worth trying.

00:44:14.692 --> 00:44:16.650
You can make an assessment,
is it worth trying.

00:44:16.650 --> 00:44:19.350
And then, what things
would you have to work on

00:44:19.350 --> 00:44:20.610
in order to make the change?

00:44:20.610 --> 00:44:22.770
Or do you totally give up?

00:44:22.770 --> 00:44:24.840
Christiansen's claim
to fame, he basically

00:44:24.840 --> 00:44:28.320
says nothing innovative can
come out of a big company.

00:44:28.320 --> 00:44:31.440
It always has to be a start up.

00:44:31.440 --> 00:44:35.400
That creates a major conundrum
for us in the energy sector,

00:44:35.400 --> 00:44:38.250
because almost anything you
need to do in the energy sector

00:44:38.250 --> 00:44:41.010
is large-scale and highly
interdependent, and therefore

00:44:41.010 --> 00:44:43.310
requires scale.

00:44:43.310 --> 00:44:46.060
But it needs a start up--

00:44:46.060 --> 00:44:48.160
catch-22.

00:44:48.160 --> 00:44:50.000
Any other questions about this?

00:44:50.000 --> 00:44:51.092
Yeah?

00:44:51.092 --> 00:44:53.260
AUDIENCE: So I would
assume that we're talking

00:44:53.260 --> 00:44:55.600
about organic growth, right?

00:44:55.600 --> 00:44:57.850
But a lot of times, you'll
see companies, especially

00:44:57.850 --> 00:44:59.410
in tech business,
where you might not

00:44:59.410 --> 00:45:02.992
have that much capital
intensive investment.

00:45:02.992 --> 00:45:05.200
So a lot of things are really
just based on software.

00:45:05.200 --> 00:45:08.420
For example, Google, I think
they're very finely-tuned.

00:45:08.420 --> 00:45:11.070
But at the same time, they're
innovating very quickly.

00:45:11.070 --> 00:45:12.070
They're changing things.

00:45:12.070 --> 00:45:14.195
They require a lot of
different types of companies.

00:45:14.195 --> 00:45:17.620
And I think it's because if
they see a technology that's

00:45:17.620 --> 00:45:21.130
promising, they're able to
sort of grow inorganically

00:45:21.130 --> 00:45:23.800
by that company, and see--

00:45:23.800 --> 00:45:26.290
let the company almost operate
independently for a while,

00:45:26.290 --> 00:45:28.157
and see how earnest
that technology is.

00:45:28.157 --> 00:45:29.990
GUEST SPEAKER: Very,
very interesting point.

00:45:29.990 --> 00:45:31.490
So if we were to
complicate it, we'd

00:45:31.490 --> 00:45:33.490
say that you could
say that this is

00:45:33.490 --> 00:45:36.490
a story about organic growth--
kind of just investing

00:45:36.490 --> 00:45:37.390
yourself.

00:45:37.390 --> 00:45:40.360
And you might say that we could
avoid some of these issues

00:45:40.360 --> 00:45:43.130
by acquiring.

00:45:43.130 --> 00:45:46.480
And we can let things operate
by themselves for a while,

00:45:46.480 --> 00:45:48.160
and then we can bring them in.

00:45:48.160 --> 00:45:50.210
Now, we get a new
set of challenges.

00:45:50.210 --> 00:45:52.630
The set of challenges
is, is the company

00:45:52.630 --> 00:45:56.980
going to be successful at
integrating the acquired firm?

00:45:56.980 --> 00:46:00.880
Or is it going to leave it
alone and basically become

00:46:00.880 --> 00:46:01.970
a portfolio owner?

00:46:01.970 --> 00:46:03.880
Therefore, it really
didn't bring it in.

00:46:03.880 --> 00:46:07.090
Or is it going to bring
it in and crush it?

00:46:07.090 --> 00:46:12.310
It's very hard for large
companies to do this well.

00:46:12.310 --> 00:46:14.320
One of my major case
studies over the years

00:46:14.320 --> 00:46:16.750
has been CEMEX, the
Mexican cement company.

00:46:16.750 --> 00:46:20.800
And they have grown
entirely by acquisition.

00:46:20.800 --> 00:46:22.935
And they are very--
until 2007, when

00:46:22.935 --> 00:46:25.060
they bought the wrong
company and almost bankrupted

00:46:25.060 --> 00:46:29.290
themselves, they were
very successful acquirers.

00:46:29.290 --> 00:46:31.450
But there were a lot of
tricks associated with it.

00:46:31.450 --> 00:46:34.840
They have a post-merger
integration process.

00:46:34.840 --> 00:46:37.067
One of the key tricks they
developed-- not a trick,

00:46:37.067 --> 00:46:37.900
it's very important.

00:46:37.900 --> 00:46:39.520
They developed the
80-20 principle

00:46:39.520 --> 00:46:41.320
in the post-merger integration.

00:46:41.320 --> 00:46:43.555
So after 18 months, the
company we acquire--

00:46:43.555 --> 00:46:45.100
it's a cement company--

00:46:45.100 --> 00:46:49.430
is going to be operating
exactly like the rest CEMEX.

00:46:49.430 --> 00:46:50.895
Hey guys, this is
an acquisition.

00:46:50.895 --> 00:46:51.770
This is not a merger.

00:46:51.770 --> 00:46:53.510
You will operate
exactly like CEMEX.

00:46:53.510 --> 00:46:56.330
But if the post
merger integration

00:46:56.330 --> 00:46:58.640
team, which consists
of people from CEMEX

00:46:58.640 --> 00:47:01.190
and the newly-bought
company, don't come back

00:47:01.190 --> 00:47:03.950
with roughly 20%
of the practices

00:47:03.950 --> 00:47:08.130
that they could change
in CEMEX, they failed.

00:47:08.130 --> 00:47:11.030
So we're willing to learn
from the company we acquire.

00:47:11.030 --> 00:47:14.750
That's a way of creating
dynamism in a large parent

00:47:14.750 --> 00:47:16.100
company, right?

00:47:16.100 --> 00:47:18.880
Very few companies have
that kind of dynamism.

00:47:18.880 --> 00:47:20.630
I've done a lot of work with BP.

00:47:20.630 --> 00:47:24.140
BP bought Standard of Ohio.

00:47:24.140 --> 00:47:25.400
BP bought Amoco.

00:47:25.400 --> 00:47:26.990
BP bought Arco.

00:47:26.990 --> 00:47:30.020
They changed the label, they
didn't change the systems.

00:47:30.020 --> 00:47:32.280
And you see what we got.

00:47:32.280 --> 00:47:35.820
So acquisition doesn't
solve the problem.

00:47:35.820 --> 00:47:38.790
It may give you-- it
may give you a way

00:47:38.790 --> 00:47:41.050
to have multiple cultures.

00:47:41.050 --> 00:47:43.780
It may give you a way to have
two pieces of the company that

00:47:43.780 --> 00:47:47.020
operate on a
different clock speed.

00:47:47.020 --> 00:47:49.060
But if you're going
to gain the advantage,

00:47:49.060 --> 00:47:51.102
ultimately, you're going
to have to integrate it.

00:47:51.102 --> 00:47:52.990
And that's very,
very, very hard.

00:47:52.990 --> 00:47:54.257
So good point, but--

00:47:54.257 --> 00:47:56.590
AUDIENCE: One of the things
that also happens, from time

00:47:56.590 --> 00:47:58.840
to time, is you typically made--

00:47:58.840 --> 00:48:01.770
the start up-- you've made the
founders of that company rich.

00:48:01.770 --> 00:48:02.860
GUEST SPEAKER: Yeah.

00:48:02.860 --> 00:48:04.810
AUDIENCE: And you know
I can stay and work

00:48:04.810 --> 00:48:06.310
in a larger
organization, although I

00:48:06.310 --> 00:48:07.990
preferred a small company.

00:48:07.990 --> 00:48:13.720
Or I can go buy a yacht,
start another company, or--

00:48:13.720 --> 00:48:16.150
GUEST SPEAKER: And it's my baby.

00:48:16.150 --> 00:48:18.940
So if you bring in
the acquisition side--

00:48:18.940 --> 00:48:22.360
and especially, then
you have to also deal

00:48:22.360 --> 00:48:25.330
with kind of family and
founder life cycles,

00:48:25.330 --> 00:48:26.890
which is much more Hiram's area.

00:48:26.890 --> 00:48:29.140
So you're going to have to
lay that in as well, right?

00:48:29.140 --> 00:48:32.260
So you've got to be at
the right life cycle.

00:48:32.260 --> 00:48:36.340
But, so the acquired firm has
to be willing to be acquired,

00:48:36.340 --> 00:48:39.310
and has to actually want to
transfer what it's good at.

00:48:39.310 --> 00:48:42.700
And the key middle employees
of that acquired firm

00:48:42.700 --> 00:48:43.940
have to want to stay there.

00:48:43.940 --> 00:48:45.550
And the top management
either wants

00:48:45.550 --> 00:48:47.830
to integrate itself into
the company's bought,

00:48:47.830 --> 00:48:48.610
or just vanish.

00:48:51.320 --> 00:48:54.243
So now we have this dynamic
within the incumbent firm.

00:48:54.243 --> 00:48:55.910
We also have the
dynamic within the firm

00:48:55.910 --> 00:48:56.868
we're going to acquire.

00:48:56.868 --> 00:48:58.910
So it may solve our problem.

00:48:58.910 --> 00:49:00.390
But it's difficult.

00:49:00.390 --> 00:49:02.810
So bottom line, change is hard.

00:49:02.810 --> 00:49:05.630
Change is particularly hard
for large, bureaucratic

00:49:05.630 --> 00:49:07.010
organizations.

00:49:07.010 --> 00:49:10.850
If a company has really
dominated a product market

00:49:10.850 --> 00:49:13.370
segment in something like
energy, by definition,

00:49:13.370 --> 00:49:15.110
it's huge.

00:49:15.110 --> 00:49:16.600
It's very bureaucratic.

00:49:16.600 --> 00:49:20.480
It's probably very
cost-oriented.

00:49:20.480 --> 00:49:22.430
If it's a public
utility, it's even worse,

00:49:22.430 --> 00:49:26.810
because it's regulated,
and again, it's very large.

00:49:26.810 --> 00:49:30.530
And it's focused on cost and
a very particular definition

00:49:30.530 --> 00:49:32.060
of service.

00:49:32.060 --> 00:49:34.370
And it has a set of
people and capabilities

00:49:34.370 --> 00:49:36.515
for delivering the current
products and service,

00:49:36.515 --> 00:49:39.275
not for developing new ones.

00:49:39.275 --> 00:49:41.150
So it's going to be the
extreme of this case.

00:49:41.150 --> 00:49:42.690
OK, let's go to the next level.

00:49:42.690 --> 00:49:44.490
So the system context changed.

00:49:44.490 --> 00:49:47.510
This is the Michelin
article, right?

00:49:47.510 --> 00:49:53.260
So Michelin brings you
this new, no-flat tire.

00:49:53.260 --> 00:49:55.280
Why did it fail in
the marketplace?

00:49:55.280 --> 00:49:58.030
Was it a lousy design?

00:49:58.030 --> 00:50:00.290
Great design, right?

00:50:00.290 --> 00:50:03.760
Then why did it fail?

00:50:03.760 --> 00:50:05.350
Yeah?

00:50:05.350 --> 00:50:08.050
AUDIENCE: The repair
[INAUDIBLE] didn't

00:50:08.050 --> 00:50:11.920
want to take the time to put
in a new, expensive [INAUDIBLE]

00:50:11.920 --> 00:50:15.068
help change the tires properly.

00:50:15.068 --> 00:50:16.360
GUEST SPEAKER: OK, so this is--

00:50:19.390 --> 00:50:22.360
a tire-- an automobile
tire, unless it's

00:50:22.360 --> 00:50:24.010
absolutely perfect--
and of course,

00:50:24.010 --> 00:50:26.800
why would you have a run
flat tire if it was perfect?

00:50:26.800 --> 00:50:29.590
The fact that it's a run flat
tire already admits to the fact

00:50:29.590 --> 00:50:32.930
that it's going to have
damage and need repair.

00:50:32.930 --> 00:50:37.030
So that the inherent
nature of the product says,

00:50:37.030 --> 00:50:39.940
this is a product that you buy
and then a product that you

00:50:39.940 --> 00:50:42.230
service.

00:50:42.230 --> 00:50:45.065
And the whole appeal is you
want to be able to drive

00:50:45.065 --> 00:50:46.190
to the service shop, right?

00:50:46.190 --> 00:50:48.660
You want to go 45 miles on
your flat tire at night.

00:50:48.660 --> 00:50:51.770
You don't have to stop on
the freeway, et cetera.

00:50:51.770 --> 00:50:54.140
So it's embedded in a system.

00:50:54.140 --> 00:50:57.610
Is it just the tire
repair shop that we need,

00:50:57.610 --> 00:51:00.150
or do we need any-- do we have
any other complements that we

00:51:00.150 --> 00:51:01.290
need to make this work?

00:51:03.890 --> 00:51:04.457
Yeah?

00:51:04.457 --> 00:51:06.040
AUDIENCE: You need
new rims, because--

00:51:06.040 --> 00:51:07.623
GUEST SPEAKER: You
need to have a rim.

00:51:07.623 --> 00:51:08.650
It needs a clincher rim.

00:51:08.650 --> 00:51:10.580
If you ride really
old motorcycles,

00:51:10.580 --> 00:51:12.627
you have clincher rims.

00:51:12.627 --> 00:51:14.710
Now we have rims that are
just with tire pressure.

00:51:14.710 --> 00:51:16.010
This needs a clincher rim again.

00:51:16.010 --> 00:51:17.080
So you've got to go
and talk to Hayes,

00:51:17.080 --> 00:51:18.460
or whoever it is that
makes the wheels.

00:51:18.460 --> 00:51:20.380
And you've got to get
the auto manufacturer

00:51:20.380 --> 00:51:23.245
to specify those more
expensive rims that

00:51:23.245 --> 00:51:24.370
have the clinchers on them.

00:51:24.370 --> 00:51:26.245
AUDIENCE: And also
pressure management system

00:51:26.245 --> 00:51:28.292
that was integrated
into the vehicle itself.

00:51:28.292 --> 00:51:30.500
GUEST SPEAKER: So now, I
have to buy the valve stems,

00:51:30.500 --> 00:51:34.340
but it also has to be part
of the car's computer system,

00:51:34.340 --> 00:51:36.210
in terms of the pressure
management system.

00:51:36.210 --> 00:51:37.110
So who do I--

00:51:37.110 --> 00:51:41.390
let's just think about how many
parties we have to coordinate.

00:51:41.390 --> 00:51:44.600
And how many parties
have to pre-invest

00:51:44.600 --> 00:51:46.400
before they know that
this technology is

00:51:46.400 --> 00:51:47.692
going to work so they can work.

00:51:47.692 --> 00:51:51.980
So Michelin invests
years in this technology.

00:51:51.980 --> 00:51:53.635
And they test lots
of different kinds,

00:51:53.635 --> 00:51:55.010
and they find out
this one works.

00:51:55.010 --> 00:51:58.220
And they're a very good
engineering company.

00:51:58.220 --> 00:51:59.930
They obviously, in
that testing, had

00:51:59.930 --> 00:52:02.000
to work with some
wheel manufacturers.

00:52:02.000 --> 00:52:04.040
But they've got to get
some wheel manufacturers

00:52:04.040 --> 00:52:07.010
to pre-invest in that capacity.

00:52:07.010 --> 00:52:11.060
They've got to convince Honda,
or Toyota, or General Motors,

00:52:11.060 --> 00:52:15.890
or somebody to specify
that tire and wheel,

00:52:15.890 --> 00:52:17.780
probably on a premium
model, probably

00:52:17.780 --> 00:52:20.360
at much too low a
scale to make money on,

00:52:20.360 --> 00:52:23.000
to get it out in the
marketplace and get it tried.

00:52:23.000 --> 00:52:25.940
And now, I'm going to tell you
that 5,000 vehicles this year

00:52:25.940 --> 00:52:27.460
are going to have
that wheel, and it

00:52:27.460 --> 00:52:29.600
has to be able to
be serviced at,

00:52:29.600 --> 00:52:33.080
what, 50,000 points
in the United States?

00:52:33.080 --> 00:52:35.630
Because I've got
45-mile range, so I've

00:52:35.630 --> 00:52:40.250
got to be able to get to a
authorized Michelin repair shop

00:52:40.250 --> 00:52:42.770
within that range,
otherwise that product

00:52:42.770 --> 00:52:43.810
doesn't do me any good.

00:52:43.810 --> 00:52:45.890
And now, I'm really pissed off.

00:52:45.890 --> 00:52:48.470
I paid extra money
for a product that's

00:52:48.470 --> 00:52:49.970
going to solve this
problem for me.

00:52:49.970 --> 00:52:52.610
And suddenly, I find out it's
worse than the standard product

00:52:52.610 --> 00:52:57.450
which I could have gotten fixed
at any old service station.

00:52:57.450 --> 00:52:58.380
You got it?

00:52:58.380 --> 00:53:00.690
So we have a product.

00:53:00.690 --> 00:53:02.080
And this is fairly simple.

00:53:02.080 --> 00:53:05.070
So I only have
three, four, maybe

00:53:05.070 --> 00:53:07.440
five different
complementers to deal with?

00:53:10.210 --> 00:53:12.410
AUDIENCE: This is not an
uncommon kind of problem.

00:53:12.410 --> 00:53:14.350
If you think about
video games, who

00:53:14.350 --> 00:53:18.190
develops the game for a
console that doesn't sell?

00:53:18.190 --> 00:53:21.340
Who wants to buy a console
for which there are no games?

00:53:21.340 --> 00:53:25.000
You've got to get the consoles
out and the games developed.

00:53:25.000 --> 00:53:26.770
When they invented
credit cards, you

00:53:26.770 --> 00:53:29.230
had to get the merchants
to put it in the terminals

00:53:29.230 --> 00:53:31.030
to accept the cards.

00:53:31.030 --> 00:53:33.400
And you had to get the
consumers to carry them.

00:53:33.400 --> 00:53:35.200
But if no consumers
carry the card,

00:53:35.200 --> 00:53:36.320
what good is the terminal?

00:53:36.320 --> 00:53:40.990
And if no merchants accept the
card, what good is carrying it?

00:53:40.990 --> 00:53:44.110
This chicken/egg problem
of finding complementers

00:53:44.110 --> 00:53:44.810
is not uncommon.

00:53:44.810 --> 00:53:46.310
GUEST SPEAKER: It's
the chicken/egg.

00:53:46.310 --> 00:53:50.490
And if you're going to drive the
development of this platform--

00:53:50.490 --> 00:53:51.340
which is what it is.

00:53:51.340 --> 00:53:53.470
It's now the Michelin
Run Flat platform

00:53:53.470 --> 00:53:56.260
that includes the Michelin
tire, the inner ring that

00:53:56.260 --> 00:54:00.100
is manufactured by someone else,
the rim that is manufactured

00:54:00.100 --> 00:54:02.650
by someone else, the tire
monitoring system that

00:54:02.650 --> 00:54:06.010
is manufactured by someone
else, and the distributed repair

00:54:06.010 --> 00:54:09.730
stations, then
you're probably going

00:54:09.730 --> 00:54:12.820
to have to have a brand and
reputation that make people

00:54:12.820 --> 00:54:15.640
think that you will succeed.

00:54:15.640 --> 00:54:18.400
You have to have a deep enough
pocket that convinces people

00:54:18.400 --> 00:54:19.780
that you will succeed.

00:54:19.780 --> 00:54:21.700
And you have to have
a deep enough pocket

00:54:21.700 --> 00:54:24.890
to prefund some of
these other activities.

00:54:24.890 --> 00:54:28.650
So this is not an
activity for a start up.

00:54:28.650 --> 00:54:31.010
Start up might well
come in on the platform.

00:54:31.010 --> 00:54:33.180
In fact, it may be the
best time to come in,

00:54:33.180 --> 00:54:36.210
because the platform
sponsor has to prefund

00:54:36.210 --> 00:54:38.910
the complements anyway.

00:54:38.910 --> 00:54:40.530
Start up may be
available for cheap

00:54:40.530 --> 00:54:42.840
to come into one
of those places.

00:54:42.840 --> 00:54:44.530
But they can't push it.

00:54:44.530 --> 00:54:47.080
So this is just a perfect
example of the complements.

00:54:47.080 --> 00:54:47.580
What--

00:54:47.580 --> 00:54:49.622
AUDIENCE: --design and
then sell it [INAUDIBLE]..

00:54:49.622 --> 00:54:53.040
GUEST SPEAKER: Right, so if
you came up with this design,

00:54:53.040 --> 00:54:56.750
you'd say, who could make
best use of this design?

00:54:56.750 --> 00:54:58.500
And the first question
you're going to ask

00:54:58.500 --> 00:55:01.980
is not what technology
is involved,

00:55:01.980 --> 00:55:03.720
and who knows how to
use this technology,

00:55:03.720 --> 00:55:06.660
but what changes will be
required for this product

00:55:06.660 --> 00:55:08.430
to make it in the marketplace?

00:55:08.430 --> 00:55:10.800
And who has the
standing, and the power,

00:55:10.800 --> 00:55:14.711
and the prestige to bring
about those changes?

00:55:14.711 --> 00:55:16.960
You're looking at your
technology, but you say,

00:55:16.960 --> 00:55:20.080
what needs to happen?

00:55:20.080 --> 00:55:23.320
If you're making an
app for an iPhone,

00:55:23.320 --> 00:55:26.050
that problem's been
solved for you, right?

00:55:26.050 --> 00:55:28.420
Apple has created the platform.

00:55:28.420 --> 00:55:31.010
They even have the cash
collection system for you.

00:55:31.010 --> 00:55:32.722
They even have their standards.

00:55:32.722 --> 00:55:34.180
All you have to do
is make your app

00:55:34.180 --> 00:55:36.597
and stick it on the platform,
because the platform exists.

00:55:36.597 --> 00:55:39.550
And in fact, a good platform
is a good entry point

00:55:39.550 --> 00:55:41.360
for smaller firms.

00:55:41.360 --> 00:55:45.230
But if you've got an idea that
is going to change a system,

00:55:45.230 --> 00:55:47.900
you're going to have to
find a system driver.

00:55:47.900 --> 00:55:51.340
OK, any ideas about
what Michelin might

00:55:51.340 --> 00:55:54.310
have done with all
of those tire people?

00:55:54.310 --> 00:55:55.030
Yeah?

00:55:55.030 --> 00:55:57.530
AUDIENCE: I was just thinking,
as you were talking about it.

00:55:57.530 --> 00:55:58.988
Wouldn't it maybe
have been better,

00:55:58.988 --> 00:56:01.880
since they have this-- they
need the network of places that

00:56:01.880 --> 00:56:04.280
can repair the tire to maybe
approach the market from,

00:56:04.280 --> 00:56:08.867
like, maybe a really luxury
sports car type manufacturers?

00:56:08.867 --> 00:56:10.450
Because they kind
of-- like, if you're

00:56:10.450 --> 00:56:12.040
going to buy a
really expensive car,

00:56:12.040 --> 00:56:15.130
usually you only trust a couple
of people to service that car.

00:56:15.130 --> 00:56:18.380
Then you only need that tire
system and that special service

00:56:18.380 --> 00:56:18.940
shop.

00:56:18.940 --> 00:56:20.620
And people who own
those expensive cars

00:56:20.620 --> 00:56:23.633
are willing to pay
more, and take their car

00:56:23.633 --> 00:56:25.100
to the special service shop.

00:56:25.100 --> 00:56:27.790
GUEST SPEAKER: Key
lesson-- you pick segment.

00:56:27.790 --> 00:56:33.130
You pick a segment that will
place a very high willingness

00:56:33.130 --> 00:56:35.180
to pay for your innovation.

00:56:35.180 --> 00:56:37.270
Remember last session.

00:56:37.270 --> 00:56:40.935
You pick a segment
that is manageable.

00:56:40.935 --> 00:56:42.560
And in fact, initially,
you're probably

00:56:42.560 --> 00:56:45.400
going to pick a segment
that is not profitable,

00:56:45.400 --> 00:56:48.460
because your goal is to get
out and show that it works.

00:56:48.460 --> 00:56:50.560
And if you go for
the big segment,

00:56:50.560 --> 00:56:52.750
then you've taken on
a big change problem.

00:56:52.750 --> 00:56:55.210
If you go for the
small segment, you've

00:56:55.210 --> 00:56:57.370
taken on a manageable problem.

00:56:57.370 --> 00:57:00.610
Now, I've got this set of
specialized tire repair places.

00:57:00.610 --> 00:57:02.920
And I probably already
have agreements with them

00:57:02.920 --> 00:57:05.840
that they will favor
Michelin, right?

00:57:05.840 --> 00:57:06.790
What do I do?

00:57:06.790 --> 00:57:10.828
I rent them the machines, and I
charge them on a per use basis.

00:57:10.828 --> 00:57:12.370
Because I say, I
don't know if you're

00:57:12.370 --> 00:57:14.578
going to have many customers
for this machine or not?

00:57:14.578 --> 00:57:16.390
That's my risk.

00:57:16.390 --> 00:57:19.390
Your risk is learning
how to use it, right?

00:57:19.390 --> 00:57:21.335
And if we succeed in
selling this thing,

00:57:21.335 --> 00:57:22.960
then you're going to
get some business.

00:57:22.960 --> 00:57:25.377
And then you can pay
me back piecemeal.

00:57:25.377 --> 00:57:27.460
So you could think about
business models that took

00:57:27.460 --> 00:57:29.170
the complementers into account.

00:57:29.170 --> 00:57:31.870
My sense is Michelin
did not do that.

00:57:31.870 --> 00:57:34.660
Because they had
a better product.

00:57:34.660 --> 00:57:37.090
They had a clearly
superior technology.

00:57:37.090 --> 00:57:40.490
There was no question
this was better.

00:57:40.490 --> 00:57:43.880
But to get people to adopt
it-- change, change, change.

00:57:43.880 --> 00:57:46.310
And I have to think
about it differently

00:57:46.310 --> 00:57:48.290
as the customer a little bit.

00:57:48.290 --> 00:57:51.030
But it's mainly my complementers
that I have to bring along.

00:57:51.030 --> 00:57:53.600
And I have to get it
specified on the car,

00:57:53.600 --> 00:57:55.460
and then I have to
service it afterwards.

00:57:55.460 --> 00:57:57.860
OK.

00:57:57.860 --> 00:58:00.530
Difficulty of
change-- and this, I

00:58:00.530 --> 00:58:03.320
guess you've had Dick
channeling Susan as opposed

00:58:03.320 --> 00:58:07.610
to Susan teaching you, on kind
of the cultural-- the cultural,

00:58:07.610 --> 00:58:08.960
sociological side.

00:58:08.960 --> 00:58:11.330
But this is a little
bit like culture.

00:58:11.330 --> 00:58:14.240
If you think of how hard it is
the change on the customer's

00:58:14.240 --> 00:58:16.700
part or on the firm's
part, I would argue

00:58:16.700 --> 00:58:18.070
that it goes in this order.

00:58:18.070 --> 00:58:21.440
So I've got to learn how to do
new things in a different way.

00:58:21.440 --> 00:58:23.180
That's pretty hard.

00:58:23.180 --> 00:58:27.650
But it's harder if I have
to use new complements,

00:58:27.650 --> 00:58:29.880
or change the form in
which I use things.

00:58:29.880 --> 00:58:35.382
So use form-- shared cars
versus owned cars, that's

00:58:35.382 --> 00:58:36.590
a totally different use form.

00:58:36.590 --> 00:58:38.690
It's a very different
style, right?

00:58:38.690 --> 00:58:42.110
Or clustered housing versus
distributed housing--

00:58:42.110 --> 00:58:43.530
whole series are like that.

00:58:43.530 --> 00:58:49.640
And then finally, a different
way of thinking about it, we--

00:58:49.640 --> 00:58:51.770
we, collectively
in this country--

00:58:51.770 --> 00:58:55.410
a car is immediately available.

00:58:55.410 --> 00:58:58.880
So we can go
someplace on a whim.

00:58:58.880 --> 00:59:00.980
And that's one of the
advantages of having a car.

00:59:00.980 --> 00:59:03.650
It's that freedom of being
untied from schedules,

00:59:03.650 --> 00:59:06.260
or being untied from this,
and that, and the other thing.

00:59:06.260 --> 00:59:09.170
If we go to shared cars,
or public transportation,

00:59:09.170 --> 00:59:13.127
or something else, we would
have to change the rhythms.

00:59:13.127 --> 00:59:15.710
Suddenly, you'd have to become
synchronized with everyone else

00:59:15.710 --> 00:59:16.300
again.

00:59:16.300 --> 00:59:17.540
You'd have to become Swiss.

00:59:20.100 --> 00:59:22.470
Swiss society is
built on railroads.

00:59:22.470 --> 00:59:25.620
American society
is built on cars.

00:59:25.620 --> 00:59:26.760
That's deep.

00:59:26.760 --> 00:59:29.220
That's really deep
for a society that

00:59:29.220 --> 00:59:32.550
has not developed that way,
and where people really

00:59:32.550 --> 00:59:33.720
value that autonomy.

00:59:33.720 --> 00:59:35.650
So just think of kind
of levels of change.

00:59:35.650 --> 00:59:39.402
OK, discontinuity will happen
on the level of industry

00:59:39.402 --> 00:59:40.860
as well as technology,
and there'll

00:59:40.860 --> 00:59:43.500
be an area of substitution,
area of design competition,

00:59:43.500 --> 00:59:44.730
area of incremental change.

00:59:44.730 --> 00:59:48.360
This is, again, in the
Munir and Philips article.

00:59:48.360 --> 00:59:51.660
Industry dynamics-- this
is kind of a repetition--

00:59:51.660 --> 00:59:55.800
dominant design,
similar competencies.

00:59:55.800 --> 00:59:57.640
The interesting
point, in this article

00:59:57.640 --> 01:00:00.060
they talk about the activity
network versus the industry.

01:00:00.060 --> 01:00:02.370
Because you think
of, there is a field

01:00:02.370 --> 01:00:06.900
of firms that are both
competitors and complementers.

01:00:06.900 --> 01:00:08.610
And in a well-established
industry,

01:00:08.610 --> 01:00:11.050
there will be four or five
other firms that look like you.

01:00:11.050 --> 01:00:12.300
And that will be the industry.

01:00:12.300 --> 01:00:14.790
And that's pretty
much who you look at.

01:00:14.790 --> 01:00:16.710
In a transitional
phase, there are

01:00:16.710 --> 01:00:19.128
all kinds of players
that might be involved.

01:00:19.128 --> 01:00:21.420
And you've got to think
outside your normal boundaries.

01:00:21.420 --> 01:00:22.440
That's their key point.

01:00:22.440 --> 01:00:24.330
I want to get you
to the next slide.

01:00:24.330 --> 01:00:26.610
This is where I want to end.

01:00:26.610 --> 01:00:30.990
So this is a way of
bringing together

01:00:30.990 --> 01:00:37.435
technology maturity versus
the product architecture.

01:00:37.435 --> 01:00:38.810
Roger Miller is
a friend of mine.

01:00:38.810 --> 01:00:40.400
I did a book with him
about 10 years ago.

01:00:40.400 --> 01:00:41.400
This is his latest book.

01:00:41.400 --> 01:00:42.880
It's about to come out.

01:00:42.880 --> 01:00:46.150
And he says, think of
innovation as a game.

01:00:46.150 --> 01:00:47.530
Every innovation is a game.

01:00:47.530 --> 01:00:49.660
It has many, many
different players.

01:00:49.660 --> 01:00:52.870
And product architecture--
is the product standalone,

01:00:52.870 --> 01:00:56.920
is the product platform-based,
is the product a closed system?

01:00:56.920 --> 01:00:58.600
Market maturity--
is it emerging,

01:00:58.600 --> 01:01:02.980
is it in a transitional
phase, or is it mature?

01:01:02.980 --> 01:01:04.858
Eureka!

01:01:04.858 --> 01:01:05.650
What does that say?

01:01:05.650 --> 01:01:11.470
Single inventor, start up, neat
idea, Eureka, it's standalone,

01:01:11.470 --> 01:01:15.430
it's transitional,
you do it, right?

01:01:15.430 --> 01:01:19.060
Mature markets, stand alone--

01:01:19.060 --> 01:01:22.180
new and improved tide.

01:01:22.180 --> 01:01:26.530
It's the new version, or
five star energy rating

01:01:26.530 --> 01:01:27.460
as opposed to--

01:01:27.460 --> 01:01:30.880
Energy Star rating as
opposed to 4 star Energy Star

01:01:30.880 --> 01:01:34.870
rating, or the next
version of LEDs,

01:01:34.870 --> 01:01:36.850
a little more
warmth in the light

01:01:36.850 --> 01:01:38.920
compared to the last warmth.

01:01:38.920 --> 01:01:40.810
The lighting part is
already satisfied,

01:01:40.810 --> 01:01:44.820
we're now in
incremental improvement.

01:01:44.820 --> 01:01:46.680
Is it platform-based?

01:01:49.480 --> 01:01:54.310
So Apple-- iPhone
versus the other guys,

01:01:54.310 --> 01:01:56.470
Microslop and
whatever they sell--

01:01:56.470 --> 01:02:00.670
Android-- so Apple versus--

01:02:00.670 --> 01:02:05.620
iPhone versus Android,
those are platform wars.

01:02:05.620 --> 01:02:07.660
And you've got heavy,
heavy investment

01:02:07.660 --> 01:02:10.840
by sponsors of those platforms
fighting with each other.

01:02:10.840 --> 01:02:13.083
And you have a lot
of app producers

01:02:13.083 --> 01:02:15.250
who are actually playing
across both of them, right?

01:02:15.250 --> 01:02:18.520
They're In both ecosystems.

01:02:18.520 --> 01:02:21.370
Or if it's mature, it's
mass customization.

01:02:21.370 --> 01:02:22.030
It's just apps.

01:02:22.030 --> 01:02:23.410
It's no longer
the platform wars,

01:02:23.410 --> 01:02:25.480
because there is the
established platform.

01:02:25.480 --> 01:02:27.460
System breakthrough,
pushing the envelope,

01:02:27.460 --> 01:02:29.380
I'm not quite so
sure about his terms

01:02:29.380 --> 01:02:31.700
there, but interesting
classification.

01:02:31.700 --> 01:02:36.280
So let me change this question.

01:02:36.280 --> 01:02:39.280
Let me change the question
to think about the technology

01:02:39.280 --> 01:02:41.680
that you were working
on in your team,

01:02:41.680 --> 01:02:44.980
and decide where it fits there.

01:02:44.980 --> 01:02:48.190
Take a couple of
minutes to think about--

01:02:48.190 --> 01:02:50.870
kind of position
it, and tell us why.

01:02:50.870 --> 01:02:54.010
Because it'll tell you a
lot about the business model

01:02:54.010 --> 01:02:57.360
that's going to go along
with your technology.

01:02:57.360 --> 01:02:59.000
Let me be countercultural
in Cambridge.

01:02:59.000 --> 01:03:02.460
So let me start on my right,
and just go around this way.

01:03:02.460 --> 01:03:03.710
I don't have to get everybody.

01:03:03.710 --> 01:03:07.283
But you know, each team kind of
tell me what your technology is

01:03:07.283 --> 01:03:08.450
and where you think it fits.

01:03:11.712 --> 01:03:18.160
AUDIENCE: So our [INAUDIBLE]

01:03:18.160 --> 01:03:22.650
GUEST SPEAKER: OK, so
why is it platform-based?

01:03:22.650 --> 01:03:24.530
AUDIENCE: There's hydrogenation.

01:03:24.530 --> 01:03:29.900
There's also solar
thermal, solar cells.

01:03:29.900 --> 01:03:37.598
There's a lot of ways
to get [INAUDIBLE]

01:03:37.598 --> 01:03:38.890
GUEST SPEAKER: OK, so there's--

01:03:38.890 --> 01:03:42.940
we're in, certainly, a
transitional technology area.

01:03:42.940 --> 01:03:47.590
I would think the platform
base becomes, again,

01:03:47.590 --> 01:03:50.380
who bears the cost of storage
and where does the storage

01:03:50.380 --> 01:03:51.530
fit into the system, right?

01:03:51.530 --> 01:03:53.155
So it's going to
become part of a grid.

01:03:53.155 --> 01:03:55.405
AUDIENCE: But it's also who
are the complementers that

01:03:55.405 --> 01:03:56.080
make the pieces?

01:03:56.080 --> 01:03:58.810
You may have battery makers
on one hand, and semiconductor

01:03:58.810 --> 01:04:01.870
people, or the folks
doing the thermal--

01:04:01.870 --> 01:04:03.370
who makes the big
block of graphite

01:04:03.370 --> 01:04:06.220
or wherever you use as the
thermal storage medium.

01:04:06.220 --> 01:04:09.460
So you do have different
sets of complementers

01:04:09.460 --> 01:04:11.800
depending on what road
you go down, I think.

01:04:11.800 --> 01:04:13.670
Is that what you have in mind?

01:04:13.670 --> 01:04:14.170
Yeah.

01:04:14.170 --> 01:04:15.628
GUEST SPEAKER: And
so there's going

01:04:15.628 --> 01:04:20.230
to be some pathway
of grid development

01:04:20.230 --> 01:04:24.430
with particular types of storage
embedded in order to make

01:04:24.430 --> 01:04:25.900
this storage feasible.

01:04:25.900 --> 01:04:27.700
That, in that sense,
would be a platform.

01:04:27.700 --> 01:04:28.367
And that's good.

01:04:28.367 --> 01:04:31.030
OK, next group?

01:04:31.030 --> 01:04:32.890
AUDIENCE: We were
talking about solar also.

01:04:32.890 --> 01:04:38.230
But [INAUDIBLE] getting
better, and the need for solar

01:04:38.230 --> 01:04:41.110
is always going to be
increasing as well.

01:04:41.110 --> 01:04:42.940
What's more
important in our eyes

01:04:42.940 --> 01:04:46.042
is pressing it on
[INAUDIBLE] part

01:04:46.042 --> 01:04:47.500
that's already
mature for something

01:04:47.500 --> 01:04:50.750
that doesn't [INAUDIBLE].

01:04:50.750 --> 01:04:53.750
GUEST SPEAKER: So where
does that put you?

01:04:53.750 --> 01:04:57.485
AUDIENCE: [INAUDIBLE]
where-- like, it's not that--

01:04:57.485 --> 01:05:01.490
not necessarily that you're even
improved one solar to another,

01:05:01.490 --> 01:05:02.570
but you're improving a--

01:05:05.840 --> 01:05:07.490
just acquiring.

01:05:07.490 --> 01:05:09.710
GUEST SPEAKER: Grid
level or household?

01:05:09.710 --> 01:05:11.245
AUDIENCE: More household.

01:05:11.245 --> 01:05:13.370
GUEST SPEAKER: That would
be very different, right?

01:05:13.370 --> 01:05:16.620
So it may be radical
for the household.

01:05:16.620 --> 01:05:19.040
But it's kind of
one more feature

01:05:19.040 --> 01:05:22.100
to change your energy cost
mix, and change your greenness.

01:05:22.100 --> 01:05:24.410
So in that sense, it
might be new and improved.

01:05:24.410 --> 01:05:26.810
It probably has a
brand name beside it.

01:05:26.810 --> 01:05:29.390
It probably has a
financing complementer.

01:05:29.390 --> 01:05:33.350
It may have-- be series Home
Improvement, where you put it

01:05:33.350 --> 01:05:36.090
on charge and you do 17 other
things at the same time.

01:05:36.090 --> 01:05:37.280
So it could be--

01:05:37.280 --> 01:05:40.220
it might be here or
it might be here.

01:05:40.220 --> 01:05:42.233
It could be between
those two, depending

01:05:42.233 --> 01:05:43.400
upon the economies of scope.

01:05:43.400 --> 01:05:44.067
But that's good.

01:05:44.067 --> 01:05:45.590
OK, next team?

01:05:45.590 --> 01:05:50.121
AUDIENCE: We talked about
[INAUDIBLE] solar, [INAUDIBLE]..

01:05:53.390 --> 01:05:56.570
GUEST SPEAKER: OK, and
again, the question

01:05:56.570 --> 01:05:58.340
is whether you
need to link those

01:05:58.340 --> 01:06:00.200
or whether the grid
will link those, right?

01:06:00.200 --> 01:06:02.120
And Dick and I were just
talking about what's

01:06:02.120 --> 01:06:03.830
the difference between
a closed system

01:06:03.830 --> 01:06:06.740
and a platform-based system.

01:06:06.740 --> 01:06:09.830
If the grid manages
the complementarities,

01:06:09.830 --> 01:06:11.190
then it's an open system.

01:06:11.190 --> 01:06:13.070
If you manage the
complementarities,

01:06:13.070 --> 01:06:14.912
you've chosen to mix them.

01:06:14.912 --> 01:06:16.388
AUDIENCE: [INAUDIBLE].

01:06:21.890 --> 01:06:24.540
GUEST SPEAKER: OK, I'm going
to run out of time quickly.

01:06:24.540 --> 01:06:26.870
So let me do a
couple more teams--

01:06:26.870 --> 01:06:29.150
that team and this team
here, and then we'll

01:06:29.150 --> 01:06:31.460
come down to one team over
here to more or less cover.

01:06:31.460 --> 01:06:33.030
So what do you have?

01:06:33.030 --> 01:06:34.850
AUDIENCE: [INAUDIBLE]

01:06:34.850 --> 01:06:36.140
GUEST SPEAKER: Nuclear again?

01:06:36.140 --> 01:06:37.550
Anybody who's different?

01:06:37.550 --> 01:06:41.120
Anybody who's down at the
user end of the chain?

01:06:41.120 --> 01:06:42.528
Yes?

01:06:42.528 --> 01:06:44.070
AUDIENCE: Well, I
want to say-- yeah,

01:06:44.070 --> 01:06:45.880
I guess user in terms
of transportation.

01:06:45.880 --> 01:06:49.460
So yeah, so ours is about
publicly-shared electric

01:06:49.460 --> 01:06:50.270
vehicle systems.

01:06:50.270 --> 01:06:51.020
GUEST SPEAKER: OK.

01:06:51.020 --> 01:06:54.630
AUDIENCE: So our guess would
that that would kind of tend

01:06:54.630 --> 01:07:00.046
towards a platform more,
because in the middle

01:07:00.046 --> 01:07:02.450
of the actual market
before the transportation

01:07:02.450 --> 01:07:03.830
market is kind of mature.

01:07:03.830 --> 01:07:06.312
But the economy
technology is very

01:07:06.312 --> 01:07:07.520
much in a transitional phase.

01:07:07.520 --> 01:07:08.990
Like, you have to
improve a lot of--

01:07:08.990 --> 01:07:10.532
you'd have to improve
the technology.

01:07:10.532 --> 01:07:13.580
To make it feasible, you'd
need to kind of change existing

01:07:13.580 --> 01:07:17.410
infrastructure in the system,
like charging and other things.

01:07:17.410 --> 01:07:19.160
GUEST SPEAKER: And you
also have to change

01:07:19.160 --> 01:07:21.820
some fundamental
habits in many ways.

01:07:21.820 --> 01:07:24.170
So you're talking about
a large system change.

01:07:24.170 --> 01:07:27.030
You're going to need an
important systemic change

01:07:27.030 --> 01:07:27.530
agent.

01:07:27.530 --> 01:07:29.510
OK, you could go on on this.

01:07:29.510 --> 01:07:32.690
I think it's very important to
kind of classify where you are.

01:07:32.690 --> 01:07:35.630
If you think of what are the
different business models--

01:07:35.630 --> 01:07:37.310
just quickly in
the last minute--

01:07:37.310 --> 01:07:39.440
start up or skunkworks, right?

01:07:39.440 --> 01:07:41.120
So either it's a
freestanding company

01:07:41.120 --> 01:07:43.160
or it's a freestanding
piece of a company.

01:07:43.160 --> 01:07:44.990
Because it really is autonomous.

01:07:44.990 --> 01:07:47.570
And you want to optimize
the innovation process.

01:07:47.570 --> 01:07:49.520
That's probably an
established brand--

01:07:49.520 --> 01:07:51.230
new and improved, but it
already has some reputation.

01:07:51.230 --> 01:07:52.522
It already has market position.

01:07:52.522 --> 01:07:54.440
It already has distribution.

01:07:54.440 --> 01:07:56.990
The product is not
different enough

01:07:56.990 --> 01:07:59.060
to get you out of that channel.

01:07:59.060 --> 01:08:02.060
If it's up here, you know
you need a networked shaper--

01:08:02.060 --> 01:08:05.300
somebody who's got money,
and name, and whatever else.

01:08:05.300 --> 01:08:07.520
Down here, this is
already somebody

01:08:07.520 --> 01:08:09.050
who has a dominant platform.

01:08:09.050 --> 01:08:11.720
So the utility has
a dominant platform

01:08:11.720 --> 01:08:12.920
if it will bring you in.

01:08:12.920 --> 01:08:15.380
If not, how do you go around it?

01:08:15.380 --> 01:08:19.640
This is probably a
public/private consortium.

01:08:19.640 --> 01:08:22.812
You're nuclear/solar,
you're going

01:08:22.812 --> 01:08:24.979
to get this developed by a
public/private consortium

01:08:24.979 --> 01:08:25.896
the first time around.

01:08:25.896 --> 01:08:26.550
It's too big.

01:08:26.550 --> 01:08:27.500
It's too complex.

01:08:27.500 --> 01:08:29.779
No one is going to take
it on other than that.

01:08:29.779 --> 01:08:31.370
On the other hand,
if we're talking

01:08:31.370 --> 01:08:33.830
about a new generation of--

01:08:37.290 --> 01:08:39.620
a new kind of grid
generation, probably-- maybe

01:08:39.620 --> 01:08:41.930
a large incumbent, so Duke
Power, or South East--

01:08:41.930 --> 01:08:45.920
one of the big utilities in the
south, or a private consortium.

01:08:45.920 --> 01:08:47.930
This is not final,
but this gives you

01:08:47.930 --> 01:08:51.439
an indication of who do you
have to be when you grow up,

01:08:51.439 --> 01:08:54.420
not because of the
complexity of the technology,

01:08:54.420 --> 01:08:56.390
but because of who
needs to change

01:08:56.390 --> 01:08:59.870
in what ways in order for your
technology to be implemented.

01:08:59.870 --> 01:09:02.840
So that's the story on
innovation in business models.

01:09:02.840 --> 01:09:04.779
All set, thanks.