History shows that the road to technological innovation is long and winding, but lessons from successes and failures with other emerging technologies offer managers a helpful guide.

Innovations often follow the path of LED technology: beginning at the periphery before becoming more widely adopted.

Image courtesy of Flickr user kitroed.

Talking about “green technology” gets people excited. It’s thrilling to think that a new wave of inventions and discoveries will revolutionize the way we live, halt the degradation of our planet and conserve resources for future generations. And it’s more than just talk: Investors are committing real dollars. By one estimate, the global market for alternative energy sources (for example, wind, solar energy and biofuels) will reach $315 billion by 2018. In the past few years, the number of “significant investments” has grown by more than 30%.1

As the level of activity increases, however, discussions about green technology raise as many questions as they answer. Let’s say we start plugging our cars into a smart electric grid: Who will make the batteries, using which technologies, and what energy sources will we use to charge them? Similar debates arise over biofuels. Should we produce biofuels from algae? Will it become a more promising feedstock than corn or sugar cane? Can we produce a type of cement that releases considerably less carbon dioxide into the air — or should we begin developing alternative materials to replace it? Will energy management software spur U.S. households to regulate their peak load use — or is it simply too difficult to change people’s behavior?

The Leading Question

What can managers involved with green technologies learn from prior experiences in other technologies?

Findings
  • Take the time to study the market opportunity, and don’t expect growth to be predictable or steady.
  • Craft a flexible strategy that will help secure sustainable market leadership.
  • Build an organization that can anticipate threats as well as opportunities, and adapt to them.

Addressing these questions is complicated by the fundamental uncertainties that are at the heart of the green technology market. The evolution of this market space depends on forces that are beyond the control of any individual entrepreneur or investor. (See “Defining Green Technologies.”) Governments must fashion coherent and durable energy policies. Risk capital must be available to fund massive infrastructure projects. And there are additional wild cards: oil price volatility, geopolitical conflicts, the rate of economic growth and public attitudes toward warnings of global climate change.

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References

1. J. Bennett, “Are We Headed Toward a Green Bubble?” Entrepreneur (April 2010): 51-54.

2. The research supporting this study was funded by the Mack Center for Technological Innovation at the Wharton School of the University of Pennsylvania. See G.S. Day and P.J.H. Schoemaker, “Wharton on Managing Emerging Technologies” (New York: Wiley, 2000).

3. See G. Tellis and P. Golder, “Will and Vision: How Latecomers Grow to Dominate Markets” (New York: McGraw-Hill, 2002); and G.S. Day, “Strategies for Surviving a Shakeout” Harvard Business Review (March-April 1997).

4. R. Spekman and P. Farris, “Compact Fluorescent Bulbs: 15 Years Later,” University of Virginia Darden School, 2008; and “CFL Market Profile,” U.S. Department of Energy, March 2009.

5. M. Gladwell, “The Tipping Point: How Little Things Can Make a Big Difference” (New York: Little Brown and Co., 2000).

6. C. Shapiro and H.R. Varian, “Information Rules: A Strategic Guide to the Network Economy” (Boston: Harvard Business School Press, 1999).

7. D.A. Levinthal, “The Slow Pace of Rapid Technological Change: Gradualism and Punctuation in Technological Change,” Industrial and Corporate Change 7, no. 2 (1998): 217-247.

8. For a discussion of the Copenhagen process, see P.R. Kleindorfer, “Personal View: Coping with Copenhagen,” INSEAD, January 25, 2010, http://knowledge.insead.edu/environment-copenhagen-insead-091229.cfm. The current status of country endorsements of the Copenhagen Accord is periodically updated at www.usclimatenetwork.org/policy/copenhagen-accord-commitments.

9. V. Govindarajan and C. Trimble, “Ten Rules for Strategic Innovators” (Boston: Harvard Business School Press, 2005); L. Huston and N. Sakkab, “Connect and Develop” Harvard Business Review (March 2006): 1-8; M. Hansen and J. Birkinshaw, “The Innovation Value Chain.” Harvard Business Review (June, 2007).

10. V. Barabba, “Meeting of the Minds: Creating the Market-Based Enterprise,” (Boston: Harvard Business School Press, 1995).

11. Tail events refer to unlikely occurrences, drawn from the tail of the probability distribution. Black swans refer to large-impact and rare events outside most people’s expectations. Singularities refer to a mathematical discontinuity, such as a plastic credit card breaking at some point (the singularity) when bent further and further. See N.N. Taleb, “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” (London: Texere Publishing, 2001) or his “The Black Swan: The Impact of the Highly Improbable” (New York: Random House, 2007); see also, B. Mandelbrot and R.L. Hudson, “The (Mis)Behavior of Markets” (New York: Basic Books, 2004).

12. P.J.H. Schoemaker, “Profiting From Uncertainty: Strategies for Succeeding No Matter What the Future Brings” (New York: Free Press, 2002).

13. A.K. Dixit and R.S. Pindyck, “The Options Approach to Capital Investment,” Harvard Business Review (May-June, 1995): 105-115.

14. I.C. MacMillan and R.G. McGrath, “Crafting R&D Project Portfolios,” Research Technology Management 45, no. 5 (September-October 2002): 48-59.

15. Grid-price refers to the price of electricity charged by utilities to the end consumer of electricity.

16. P.J.H. Schoemaker and J.A. Schoemaker, “Chips, Clones and Living Beyond 100” (Upper Saddle River, NJ: Pearson Publishing, 2009).

17. http://web.mit.edu/erc/spotlights/ethanol.html.

18. P. Kleindorfer and J. Wind (eds.), “The Network Challenge: Strategy, Profit and Risk in an Interlinked World,” (Upper Saddle River, NJ: Wharton Publishing, 2009): 277-295.

19. G.S. Day and P.H.J. Schoemaker, “Peripheral Vision: Detecting the Weak Signals That Will Make or Break Your Company” (Cambridge, MA: Harvard Business School Press, 2006).

20. G.S. Day and P.J.H. Schoemaker, “Are You a ‘Vigilant’ Leader?” MIT Sloan Management Review 49, no. 3 (spring 2008): 43-51.

21. C.A. O’Reilly and M.L. Tuschman, “The Ambidextrous Organization”, Harvard Business Review (April 2004); see also Govindarajan, “Ten Rules.”

i. Jefferies Research, “Clean Technology Primer,” September 2009.

ii. These solar PV scenarios are described in more detail in a working paper by Michael Dreimann and Raphael Speck titled “Solar Power,” February 2010; for a copy, see http://mackcenter.wharton.upenn.edu/fordpapers.aspx.

Acknowledgments

The authors would like to thank Paul Kleindorfer, Ron LaSalvia, Patia McGrath, Kimberly Schoemaker, Scott Snyder and Arjen van den Berg for their valuable feedback, as well as Gretchen Anderson for her valuable editorial support.

2 Comments On: Innovating in Uncertain Markets: 10 Lessons for Green Technologies

  • Siswanto Gatot | July 15, 2011

    yes, the most crucial factor is timing, when we start to do. business in green technology needs long perspective and continuous innovation. we must break the zone of comfort first, shifting to a new habit and culture

  • Horia Liviu POPA | July 15, 2011

    A very valuable paper!

    Prof.Dr.Eng. Horia Liviu POPA
    Politehnica University of Timisoara, Management Faculty

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