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Discontinuities are challenging because: They challenge the way the firm creates value: –New technologies –New customers & new markets They challenge the way the firm captures value: –New business models, new complementary assets They require the ability to balance the tension between “entrepreneurial energy” and “coordination”
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Stuck!Doing New Things in Old Organizations & The Challenge of Climate Change
November 6th, 2008Rebecca Henderson, MIT
Doing new things in old organizations is hard
Performance
Time
Ferment
Takeoff
Maturity
Discontinuity
Discontinuities are challenging because:
• They challenge the way the firm creates value:– New technologies– New customers & new markets
• They challenge the way the firm captures value:– New business models, new complementary assets
• They require the ability to balance the tension between “entrepreneurial energy” and “coordination”
Or:• “I see”, he said, “you’re suggesting that we invest millions of
dollars in a market that may or may not exist but that is certainly smaller than our existing market, to develop a product that customers may or may not want, using a business model that will almost certainly give us lower margins than our existing product lines. You’re warning us that we’ll run into serious organizational problems as we make this investment, and our current business is screaming for resources. Tell me again just why we should make this investment?”
-Divisional Manager, Telecommunications Equipment Provider
But wait! It get’s worse!
Is this your life?
Overload
Productivity falls
Early stage work
neglected
No time for maintenance/
training
Performance degrades
Overload is much more toxic than we think…
Overload
Productivity falls
Early stage work
neglected
No time for maintenance/
training
Performance degrades
And the ways we typically respond usually make things worse…
No time for strategy
My people need helpAdd process,
check points
No decisions
Doing new things in old organizations is hard
Performance
Time
Ferment
Takeoff
Maturity
Discontinuity
What can be done?
Firms that successfully manage transitions:
• Get the strategy “right”– Create real value through linking great technologies to real customer &
consumer needs– Capture the value through a deep understanding of potential business models
and competitive realities
• Keep the organization from getting in the way– Build the “ambidextrous organization”: actively embrace both “entrepreneurial
energy” and “coordination”
• Don’t tolerate overload– Manage capacity– Make real decisions
Or:• Hold a common passion about the importance of making the
transition• Tell the truth• Actively balance long and short term decisions• Encourage “high conflict, high respect” conversation and
decisions• Manage with judgment and respect: motivate behavior through
the use of “relational contracts” rather than a reliance on short term, quantitative metrics
For example:Dealing with “Worse Before Better”
Time
Performance
What does this have to do with climate change?
Since 1950 the economy has grown even faster than the population…
Fueled largely by fossil fuels
Renewables are still a small share of total energy supply…
In consequence, carbon emissions have greatly increased
Driving up CO2 concentrations in the atmosphere…
Global average temperatures have also increased
What will happen next?
Another 3 billion people will join us on the planet by 2050
Source: World energy outlook, 2006
They will want energy…
Really quite a lot of energy• In 2002, the world used 13.5 TW
– 1 TW is 1 trillion watts– Or about 20,000 50 MW power plants
• By 2050, we will need:– Perhaps somewhere between 28-35 TW– 45 TW @ European rates of energy use– 102 TW @ US rates
• We need around 14.5-21.5 new TW
We could burn fossil fuels• There’s lots and lots of coal• But if we increase the CO2 in the atmosphere, the odds of our
having very nasty effects on the climate increase quite dramatically
• At 450 ppm – the commonly accepted “aggressive target” for stabilization– There is a 50% chance of global average temperatures rising by
more than 2° C, – And a 33% chance of their rising by more than 3° C.
• At 550 ppm – a more likely level – the odds go up even further• This implies “rolling the dice” on a range of fronts…
We could:• Dam all the remaining rivers
– 0.7-2.0 TW• Saturate the planet with windmills
– 2.1 TW• Use all the available land for biomass
– 7-10 TW• Build a new nuclear plant every two days for the next 45 years
– 8 TW
Source: Prof. Dan Nocera, Dadelus, 2007
In the short run we need:• Everything we can feasibly get our hands on:
– Biomass, Wind, Nuclear, Solar…• Massive reductions in demand
In the long term we need:• Aggressive research in solar power
– More solar energy strikes the surface of the earth in one hour than humans use in a year
• A massive transformation of the economy– Very significant reductions in demand
• How do we take 80% of the carbon out of the economy within 50 years?
Can we do it?
Performance
Time
Ferment
Takeoff
Maturity
Discontinuity
We need to:• Get the strategy “right”
– Create real value through linking great technologies to real customer & consumer needs
– Capture the value through a deep understanding of potential business models and competitive realities
• Keep the organization from getting in the way– Build the “ambidextrous organization”: actively embrace both “entrepreneurial
energy” and “coordination”
• Don’t tolerate overload– Manage capacity– Make real decisions
Or:• Hold a common passion about the importance of making the
transition• Tell the truth• Actively balance long and short term decisions• Encourage “high conflict, high respect” conversation and
decisions• Manage with judgment and respect: motivate behavior through
the use of “relational contracts” rather than a reliance on short term, quantitative metrics
I look forward to working together!