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!