Although there is consensus that the world needs to shift to more efficient, lower-carbon energy sources, we are probably going about it the wrong way says Clayton Christensen from Harvard Business School
History has shown that cramming new technologies into existing value networks rarely succeeds.
For decades, some of the world’s best scientists and engineers have been working to improve the cost-performance of alternative energy resources and yet, after many billions of dollars of investment, alternative energy isn’t cost competitive with traditional fossil fuels without signifi cant government subsidy (for brevity’s sake, we’ll set aside discussions of the cost of the negative externalities of fossil fuels). Although the relative competitiveness is improving, the world today faces the prospect of needing to continue to pour signifi cant resources into developing and subsidizing alternative energy resources, to sustain the hope that someday it will make sense for people to switch the sources of their energy consumption. But if we continue down this path, we can most likely expect more of what we already have: plodding progress on expensive solutions. We need to rethink the approach we’re taking to innovation in the energy sector.
The way that innovation has unfolded in other industries can be instructive. For example, when the transistor fi rst was discovered at Bell Labs, the leading consumer electronics companies in the world (e.g., Magnavox, Zenith and RCA in the US) took licenses out on the patent, to see if the transistor would be an appropriate replacement for the vacuum tube. Each of these consumer electronics giants were acutely aware of the drawbacks of vacuum tubes – they were fragile and broke easily, requiring frequent replacement, which meant that customers spent a fair bit of time unable tolisten to their radios or watch their televisions, waiting for the repairman to fi x their appliances. However, when these consumer electronics companies tested the transistor, they found that transistor-based electronics offered lower fi delity and more static than vacuum tube-based tabletop radios and fl oor-standing televisions. As a consequence, none of these companies put its weight behind a transistor-based product paradigm.
It was new entrants, companies like Sony, with low-priced, low-quality products that successfully brought transistorbased electronics to the mass markets. Rather than waiting until they had a transistor radio that could compete with RCA’s vacuum tube tabletop radio on the basis of fi delity, they sold the transistor radio to people who didn’t already have a radio (primarily young adults) for listening in a new context (away from home, but out of the car) through a channel that the incumbent companies didn’t use (department stores). And although a Sony radio didn’t initially sound as good as an RCA radio, it was good enough for many people, and with time, the quality of the Sony radio improved such that Sony has become one of the most successful consumer electronics companies in our generation, and its products are of suffi cient quality for almost everyone. Most of its vacuum tube-based competitors never successfully made the switch to transistors. They are all gone now.
The vast majority of our efforts to roll out widespread use of alternative energy suffers from the misunderstanding that plagued the vacuum tube-based consumer electronics companies: we look for ways to replace gasoline use with ethanol, to convince people to put solar cells on their roofs and unplug from the grid or to fi gure out how to implement a hydrogen fuel distribution network in the event that we may some day have commercially viable fuel-cell powered vehicles. These are all extremely demanding applications. And the incumbent energy and utility companies are hardly oblivious to the diffi culties of dependence on fossil fuels.
With the case of the transistor as context, we shouldn’t be surprised that the efforts of the incumbents (in this case governments and energy and utility companies instead of vacuum tube-based consumer electronics companies) are frustrated by the relative lack of quality of alternative energy resources. We can debate all day about whether the majoroil companies have incentives to sabotage alternative energy, but the truth is that right now, for most people, fossil fuels are the best, most convenient source of energy. Making alternative energy sources cost-effective and plug-compatible in this system is a very, very diffi cult challenge.
But what about in the developing world? What about applications where the attributes of alternative energy are valuable and unique when compared to traditional fuels? What are the nonconsuming contexts (e.g., the transistor radio allowed for out-of-home listening) and who are the non-consumers (e.g. teenagers in the case of the transistor radio) of energy? Spending our time and effort on identifying those applications where the virtues of alternative energy resources are most valued relative to the traditional options will likely do more to accelerate the pace of innovation in the energy sector than government subsidy or tax credit.
This is not to say that government ought not to play any role. Far from it. But government resources would be better and more effectively spent on helping to identify and foster the use of alternative energy in circumstances where current energy use is most limited or constrained, rather than trying to make the current slate of alternative energy offerings good enough to immediately comply with our existing patterns of use. Hopefully some day it will be, but we will reach that day faster and more cheaply by targeting today’s non-consumers and non-consuming contexts.
