"We're looking for new models of innovation. We don't have all the answers or all the capabilities."
This candid admission comes from Beth Comstock, GE's chief marketing officer and senior vice president. Comstock was telling me about the company's growing innovation platform, the GE Ecomagination Challenge, which inspires collaboration between GE and entrepreneurs.
The Ecomagination brand has done a yeoman's duty over the last six years. It started as a business strategy that wrapped a handful of greener products into one brand story about helping both the environment and customers. Now this strategy/brand hybrid has evolved into an umbrella idea to cover everything from operational improvements -- such as eco-efficiency "Treasure Hunt" events that have saved GE a whopping $150 million in energy costs -- to innovation initiatives, both internal and external. The Ecomagination Challenge, now in its second year, is GE's foray in to the fast-growing world of "open" innovation.
Starting in mid-2010, GE asked the world for their ideas about "powering the grid" and, later on, "powering your home." In 12 months, GE received an astonishing 5,000 business plans. GE and its venture capital (VC) partners such as Kleiner Perkins and Rockport Capital have invested $134 million (of $200 million allocated) in a small selection of these businesses.
The Challenge "winners" range from relatively established clean tech companies such as software provider Hara, to a range of "two guys in a garage" innovators (10 of these small start-ups received $100,000 Innovation Awards). GE then set aside an additional $20 million for the Ecomagination Innovation Fund, run by VP of Ecomagination Mark Vachon, to help accelerate some of the best ideas by launching commercial pilots with GE businesses.
While GE has worked for years with outside thinkers in universities and research labs, the scale of this effort is unique. And it's expanding -- GE recently launched both a China-focused Ecomagination Challenge and, in a nice brand extension, a Healthymagination Challenge to identify healthcare technology ideas.
I see three major reasons that this kind of joint innovation between small and large companies is both exciting and absolutely necessary.
Entrepreneurs need GE: Crossing the "valley of death"
The technologies needed to solve sustainability challenges, at the scale we need them, are not going to come cheap. We're revamping multi-trillion dollar industries in energy, transportation, and buildings -- this isn't like software or social media businesses that can grow with limited capital. VC money isn't going to take these ideas far enough. The yawning gap from what a start-up needs in seed funding to what's required to build billion-dollar businesses is often called the "valley of death" in funding circles.
Who can help new techs cross the valley? Of course government can provide capital and buying power. But we need the private sector to provide those inputs, plus critical know-how on building a business. GE's Innovation Fund provides an example of how to fulfill this need; its purpose is to accelerate the scaling and commercialization of new ideas.
GE needs entrepreneurs: Challenging assumptions
Sustainability challenges are broad, deep, complex, and daunting. To paraphrase a famous quote from Einstein, we're not going to solve these problems with the thinking that got us here or, more simply, you can't get there from here. Entrepreneurs are put on this Earth to challenge assumptions. Large companies, to put it mildly, are careful, conservative, and vested in the status quo.
As many have pointed out, the horse-and-buggy companies did not develop the car. Will new eco-technologies sweep some currently dominant technologies into the dustbin of history? Most definitely. Will GE or other mega-corporations lead the transition? Perhaps, but their odds are a lot better if they identify the technologies and business models that will bleed away their profits and get to them before others do.
Although the idea of this whole initiative was to challenge the world's entrepreneurs, it ended up challenging GE even more. As Comstock described the experience, "It's changing the way we're working...Mainly it challenged our assumptions...many ideas came in and we thought at first, this is not scientifically possible, but then we'd look closer and figure out why it is."
I spoke also to Professor Karim Lakhani, a Harvard professor and expert on open innovation contests. Lakhani, who GE asked to assess the Challenge, put it all in context: "It was new for a company like GE to open up the ideas funnel and admit that, 'hey, we don't entirely know what we don't know.' "
Entrepreneurs need each other: The Challenge as platform
Perhaps the most important element of the Challenge is that all of these ideas can find not just funding and acceleration, but each other. As Professor Lakhani describes it, "What was novel here was that GE was trying to create a platform and an ecosystem around green." Apparently it worked.
One of the contestants, Sam Qin, told GE that his innovation, From Net Zero to Waste Zero, "only provides a subset of an Ecohome solution...the Challenge has put us in touch with companies that provide the other pieces." In total GE gathered 70,000 innovators from 150 countries and received more than 80,000 comments.
In any open innovation process, winnowing the funnel of ideas to the "good ones" is a thorny task (more in a later post on this), but one method is to let the community itself figure out the best ideas. We'll see more of this approach as companies get more comfortable opening up.
So large and small companies all need each other. As Comstock put it, "What can we learn from start-ups? A lot, but there's also a lot that a big company can teach a start-up."
Given the nature of our problems, programs like GE's may be our best hope of marrying capital with ideas, seasoned hands with entrepreneurs, and practicality with, well, hope.
(This post first appeared at Harvard Business Online.)