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When Bill Joy said: "There are always more smart people outside your company than within it," he wasn't trying to be a smart-alec.  Instead, he was urging companies to leverage ideas from outside to solve some of their most challenging problems.
 
Now, in a world of frozen financial markets with justified discouragement about returns to investors in conventional venture capital models, how can needed innovations be funded in relatively mature, but suddenly stressed,  industries such as plastics, electric power delivery, alternative energy, and energy delivery?

I think the answer is to form Solution Collaboratives.



A while back I blogged about Opening up Reverse Innovation in which I tried to make the case for another business model where solutions become the focus of "open collaboratives,"  Let's call this a solution collaborative:

Companies with a strategic interest in solving a problem or a class of problems can participate by funneling resources (money, labs, information, smart people, etc.) through the collaborative; by participating in direction; and by contact with analysis and expertise. Information from a collaborative world would logically lead to new entities which make problem-solving investment, but also could be individually exploited by strategic players.

How to Organize a Solution Collaborative

A solution collaborative is created in 2 stages, just as a proprietary venture might be formed. The first stage is to collaborate in researching and analyzing the solution to a technoeconomic problem of general interest across an industry or industries.  The result of this stage is a stream of information and consultations which flow back to all participants.   The collaboration brings technical expertise and knowledge of market needs to bear on any feasible solutions to this need, together with actionable information for individual collaborators to pursue.

The second stage is conditional.  If demanded by participants, the collaboration can even evolve to creating an organization to bring about the solution, to the mutual benefit of collaborators.   Since the collaboration is organized and has access to the "best and the brightest" from everywhere, and especially  benefits from having excellent feedback about market needs, a collaboration removes most of the risks which attend venture capital firms or the use of a proprietary R&D effort.


Why Collaborate?

Others have talked about the anecdotal benefits of a collaboration curve.  We can assure you that the benefits of collaboration are not anecdotal - but quantifiable, economic benefits.

Studies have shown that too many firms mistakenly applied an "outsourcing" mindset to collaboration efforts. This fatal mindset leads to three critical errors:

1. they focus solely on lower costs, failing to consider the broader strategic role of collaboration.  
2. they don't organize effectively for collaboration, believing instead that innovation could be managed much like production and partners treated like "suppliers."
   
3. they don't invest in building collaborative capabilities, assuming that their existing people and processes are already equipped for the challenge.

To be successful requires you developed an explicit strategy for collaboration and make appropriate organizational changes to aid performance in these efforts.

Collaboration is a new and important source of competitive advantage. Speaking from experience, one of my companies - PTAI - has been doing collaboratives among industry competitors since 1972.  Back in the day, we called them "multiclient studies."  We acted as if we were a corporate staff group but with better access, studied the heck out of an issue, wrote a detailed analysis and sold it to the many interested parties.  Those in the plastics, automotive, paper, packaging  and other industries bought them widely on a variety of technoeconomic  issues.

Then, in the 1990s, PTAI innovated a method to benchmark performance among competitors in an industry, allowing any participant to quantitatively place its performance among competitors along hundreds of variables.  We continue to execute this method to the advantage of hundreds of global businesses in 55 specific industries and both numbers continue to grow.

Now we're turning our attention to solution collaboratives through another one of my companies - Townsend Solutions- to address some of the most pressing problems faced by some of the mature industries.

In today's Wall Street Journal they're blogging about Paul Mc Cartney - bashing him for trying to make a difference. And when you look at the list of all the blog entries for today, there's not one mention of Copenhagen, not one mention of the very real issues at stake for the world.

Instead we see a concert of ignorant swift-boating going on, targeting the masses with false claims and irrelevant chatter - in order to obstruct the work that needs to get done. This type of obstructionism is not going to help business interests, only hurt them.

The science historian (and physicist) Spencer Weart says in the WaPo:

The theft and use of the emails does reveal something interesting about the social context. It's a symptom of something entirely new in the history of science: Aside from crackpots who complain that a conspiracy is suppressing their personal discoveries, we've never before seen a set of people accuse an entire community of scientists of deliberate deception and other professional malfeasance.

Even the tobacco companies never tried to slander legitimate cancer researchers. In blogs, talk radio and other new media, we are told that the warnings about future global warming issued by the national science academies, scientific societies, and governments of all the leading nations are not only mistaken, but based on a hoax, indeed a conspiracy that must involve thousands of respected researchers. Extraordinary and, frankly, weird. Climate scientists are naturally upset, exasperated, and sometimes goaded into intemperate responses... but that was already easy to see in their blogs and other writings.

The Copenhagen diagnosis is bleak.  It documents the key findings in climate change science since the publication of the landmark Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report in 2007.

The new evidence to have emerged includes:

• Arctic sea-ice has melted far beyond the expectations of climate models. For example, the area of summer sea-ice melt during 2007-2009 was about 40% greater than the average projection from the 2007 IPCC Fourth Assessment Report.
• The sea level has risen more than 5 centimeters over the past 15 years, about 80% higher than IPCC projections from 2001. Accounting for ice-sheets and glaciers, global sea-level rise may exceed 1 meter by 2100, with a rise of up to 2 meters considered an upper limit by this time.  This is much higher than previously projected by the IPCC.  Furthermore, beyond 2100, sea level rise of several meters must be expected over the next few centuries.
• In 2008 carbon dioxide emissions from fossil fuels were ~40% higher than those in 1990. Even if emissions do not grow beyond today's levels, within just 20 years the world will have used up the allowable emissions to have a reasonable chance of limiting warming to less than 2 degrees Celsius.
  

The report concludes that global emissions must peak then decline rapidly within the next five to ten years for the world to have a reasonable chance of avoiding the very worst impacts of climate change.And here we have the Wall Street Journal bashing Sir Paul.  The press has abdicated its responsibility, it seems, and so have far too many businesses. 

The US Chamber of Commerce has also laid out an aggressive agenda of obstructionism, causing several of its members to resign.

On the other side, some scientists, like James Hansen for example, point out that the "cap and trade" regime being advocated in Copenhagen is faulty from the outset. Hansen's point is solid: "only a direct tax on fossil fuels as close to the source as possible would succeed in stopping the rise of emissions."

So what's the big deal about Copenhagen, anyway?  

What should business be doing?

If you believe that there are important reasons to reduce CO2  levels in the atmosphere, or even to stop the growth of CO2 levels, then Copenhagen is crucial. You should hope that most of  the world's CO2-emitting countries cobble together individual targets and commit at Copenhagen to put teeth into individual company targets for future CO2 emissions. Let's call these the Copenhagen Rules.

The organizers of Copenhagen correctly emphasize that two other results will be important.  First, that all of us rich, developed countries agree to fund specific CO2-related activities by poorer, developing countries.  A series of big, important arguments going on there, since most of the increase by 2050 in the Global Middle Class will be in such countries.  And the global middle class drives CO2 emissions. Second, that recipients countries commit to a set of listed actions to use that help to minimize their emissions of CO2.  That negotiation will go on long after Copenhagen closes.

Instead of beating around the bush, businesses need to face the reality of climate change and craft new, innovative strategies to meet the challenges ahead.  Burying their heads in the sand is not exactly a business strategy.

Here's what needs to happen:

• A carbon tax must become a reality: the free-lunch is over. Emissions must be controlled world-wide.
• Businesses must invite all stakeholders to the table and look for collaborative solutions. Yes, that means Big Coal needs to sit down at the same table with Judy Bonds.
  
• Collaborative does not mean industry-led.
  
• Countries will not reduce CO2 emissions!  Innovators must reduce CO2 emissions.  Countries set either arbitrary, bureaucratic rules which incentivize and constrain innovators; or countries create economic incentives which guide innovators to the desired goal, in this case slowing and eventually reversing the CO2 content of the atmosphere from the current 380 parts per million (PPM), back toward the 19th century level of 280 PPM.  Until Copenhagen Rules have be agreed upon and later made effective, thousands of innovators are partially hamstrung in launching thousands of actions designed to reach that CO2 goal.
  

We have a strong bias against the individual governments getting in the way of innovators.  Applying a variant of Occam's Razor, the best way is probably the simplest way to guide innovation to reduction in CO2 concentrations.  We strongly suggest that, to make a difference, all emissions of CO2 must be taxed and economic mechanisms used to adjust the distortions and any unintended consequences. 

The truth (plus a simple carbon tax) will set innovators free!

If Copenhagen Rules emerge and are ratified and given teeth, then innovators will have a defined playing field for "getting the ball rolling."  Sustainable energy development needs to know that it will be allowed to create returns on a very large investment.  Taxing unsustainable energy will stabilize returns on any sustainable energy.  Currently, such projects are dependent on large, inefficient subsidies, funded by governments which would rather pick winners than let the innovators make and lose money by creating winners.  Well-intentioned people have for years agreed to use sustainable energy subsidies, and the ball is indeed rolling is some places. 

Copenhagen Rules are about freeing up global innovation, which should not be limited to those rich countries who have been generous enough to pay for these large subsidies.  Copenhagen Rules will transfer the responsibility globally and cause the solution to also be global.

So even though Copenhagen Rules are certainly not optimal, they are a crucial first, global step.  Reducing CO2 emissions will not only help lead to lower CO2 levels and therefore help (by an amount yet to be determined) slow global warming, but it produces the following desirable results:

• It will make coal mining and burning pay its own way, which probably will slow or reverse environmental damage.  If there is a viable technology called "clean coal," the Copenhagen Rules will replace dirty coal with clean coal, and replace all coal at the margins.  This is critical in China and India.
• The Copenhagen Rules will quantify the incentives for better Carbon Capture and Sequestration (CCS) technologies.  Innovators are working on these, but they need clear signals.
• The potential for new natural gas supplies will be aided by Copenhagen Rules, since natural gas will be favored over liquid petroleum and especially over coal.  And new natural gas is apparently quite abundant at a "middling" price relative to petroleum.
• Since new "shale gas" technology shows promise of domestic gas supplies in many countries on the Earth, the Copenhagen Rules will assist this new, domestic gas in displacing imported, OPEC-priced petroleum.  The economic influence of slowing the need for new liquid petroleum will improve the living standard of many poor and some rich petroleum importers.  
• Development in emerging economies does not have to follow the same road we took in the west.  New alternatives can and will work, if the price is right to encourage technology transfers.
• But maybe the biggest, vaguest impact of new, domestic gas production could be the geopolitical influence.  If the global community is less vulnerable to importing more petroleum, the Middle East might be a more stable region.  Or maybe not, given history. And the Copenhagen Rules are a step in this direction, away from petroleum addiction.
  

One final observation on swift-boating: we know that drama sells. In the American media, "climategate" is beginning to push Sarah Palin off the front page.  But it is also a big, fat, smelly red herring.  Throw out all that theater (for now) and Copenhagen Rules are still justified and important - for all the reasons above.

We are running out of time, and there are no bail-outs for the Earth.

In an important Harvard Business Review article - How GE is Disrupting Itself, by GE's Jeff Immelt and Dartmouth professors Vijay Govindarajan and Chris Trimble, we are introduced to the idea of reverse innovation - an innovation likely to be created or adopted first in the developing world and then marketed worldwide.

The article also shows that reverse innovation presents an "organizational challenge for incumbent multinationals headquartered in the rich world," as Govindarajan explains it, and also presents an organizational model for overcoming that challenge.

A great set of ideas--especially if you are the CEO of a global company rich in resources for innovation!

But what do we learn about the rest of us innovators--those who see important problems solvable with identifiable technologies? The innovation literature predicts that big companies acquire their most critical innovations--from individuals, academicians, "skunk works"--essentially from "islands" of innovation. Let's look at how to extend this model of how to manage the development of island-based innovation. Then these insulated innovations gain help from the "mainland"--resources of all sorts--without which they would grow slowly or not at all.

The gist of the HBR article is that the flow can then be reversed to the developed world--the mainland. To do so, it makes two fundamental assumptions--assumptions that, unfortunately, do not hold true for the majority of us. And these are, first, you have islands of talent available in your company, and second, these islands have access to a mainland rich in resources.

The non-GE world, therefore needs a new business model to help these islands of innovation create and develop solutions to pressing problems.

What if we were to combine reverse innovation as described in the article with Henry Chesbrough's concept of open innovation? A quick reminder on what it is:

Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology". The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (e.g. patents) from other companies. In addition, internal inventions not being used in a firm's business should be taken outside the company (e.g., through licensing, joint ventures, spin-offs).

Procter and Gamble's now famous "conversion" to their open innovation model shows us that large multinationals can use the innovations produced by the "islands" (individuals and small companies) and turned into massive revenue streams for the "mainland."

So why can't a company like GE follow down this path with "open reverse innovation" - inviting small companies in India and China to submit their products, services and ideas to be evaluated by GE for global distribution.  Of course, the open model would require an environment of trust - but what better way to create goodwill in new markets than to be seen as a development partner in the China, India, and resource-starved Africa?  A.G. Lafley sits on GE's board; surely he could help them get started.

Question: does GE have the culture to embrace open reverse innovation?

Over 20 years ago I was called in by Bill Stavropoulos , now the retired Chairman, to meet with the top polymer managers at Dow Chemical.  He asked the following: "How should Dow change the way it manages to build Dow businesses in new areas like high performance plastics?"  The edited answer is smoother after so many years, but it is the same answer I gave all those years ago:

Large organizations like Dow must struggle to become more open systems, not closed systems, if they wish to innovate for the outside world.  Staff spend too much time working with people inside the system, not embracing the ideas of outside people.  And large companies worry too much about keeping their knowledge secret: conversely, they do too little interacting with outsiders, including their target customers, or ivory tower types, or just plain dreamers. Company culture is an obstacle to success.

 
Another business model, if needed, is where solutions become the focus of "open collaboratives,"-- new entities that can acquire and make available the same or similar kinds of resources available within GE to the island-based problem solvers. Companies with a strategic interest in solving a problem or a class of problems (including GE) can participate by funneling resources (money, labs, information, smart people, etc.) through the collaborative; by participating in direction; and by contact with analysis and expertise. Information from a collaborative world would logically lead to new entities which make problem-solving investment, but also could be individually exploited by strategic players.

In other words, islands without mainland support can come together to form "virtual mainland", thereby, exponentially increasing their problem-solving capabilities. Again, the model is applicable in both East and West.

Sidenote: although the venture capital model is one alternative to what VG and Jeff describe--it is clearly focused on developed markets and making profits for the financial (i.e. not strategic) investors. All VC collaboration is mostly through balance sheets, not among experts or teams. So VCs are inherently not designed to meet the same needs.

Here are a couple of examples of possible "collaboratives" we have been working to create.

Village Empowerment: The 3 billion or so people of the developing world who are not part of the modern economy need us innovators to create practical ways that villages can have enough food, electric power, clean water, education, and sources of cash income. Most of all the villages need to create elements of a good life without having to emigrate. Trying to solve the urban problems because of increased influx of rural population is more of a symptomatic treatment. It doesn't address the root cause. Better would be to take the jobs to the villages and remove the basic need for villagers to move out. Currently, here are many technologies working in individual silos aimed at solving some of these problems. They need to come together in a holistic way, which we believe needs a collaborative effort. Once developed, this set of tools will find applications back here on the mainland.

Climate Change: Another example is that the whole world needs better ways to stop global warming. Adding carbon taxes provides the necessary drive--but who or what solves the problem? There are numerous approaches to "fixing" carbon which need intensive development and the solution is really many solutions. A collaborative effort to fix carbon in many ways is a natural for creating and developing as many island-based solutions as possible. And every company (or government) with a carbon problem or a possible carbon solution should be part of the one (or more) such collaboratives, hoping to get the problem solved well for all our good.

Compressed Natural Gas (CNG): CNG can be the bridge to a clean, secure vehicular fuel future.  The elements of this system are on various islands.  First, new technology to find and produce economical natural gas in many places seems likely to result from the North American "shale gas" revolution: CNG will be available and relatively cheap for several decades.  Second, adapting both large and small internal combustion engines to operate on CNG is proven and important already in India, Argentina, Thailand: about 8 million vehicles out of the world's billion or so vehicles have been modified to run on CNG. Clean air was an important driving force. Innovative ideas exist for more efficient on board storage of CNG, replacing today's Rube Goldberg storage systems, and modifying the existing fleet saves years of development.   CNG filling stations are a known technology ... and other innovations such as interchangable storage tanks are suggested by the battery venture, Better Place.  What makes CNG look most interesting as a possible collaboration?  There are many strategic players who would benefit from a rapid adoption of CNG as transport fuel: gas producers; progressive auto manufacturers; fuel retailing chains; oil-less countries; megaretailers; and even Al Gore! 

Even GE is too small for solving these gigantic problems. But we bet that somewhere,  someone on some island may have the answer...or at least part of the answer. And a collaborative can help find those who have the other part.

Again, there is historical precedent for these collaboratives.  The WWII Manahattan Project comes to mind - why can't we bring the best and brightest together in peace time?  Is war our best motivator?

Surely we can do better - as individuals, companies, societies, and yes, nations.

Here's to open reverse innovation!

Hi, welcome to my blog. Over the years I’ve been called many names (some of which cannot be mentioned in polite society) Skipper, Phil, “Mad Professor” Townsend and now - more appropriately, I guess - “Wild Phil.”  I’m an entrepreneur who loves to innovate, invent, and tinker with ideas and technology.

As a teenager raising cattle in a farm outside of Muncie, Indiana I would look at passing by car registration numbers and wonder if they were perfect squares or cubes. When it came  time to decide on college, it was only natural to that naive 17 year old that I should go to MIT.

The fact that I was the first person in my family to go to college did not bother me a bit. I ended up getting my diploma in Economics and Chemical Engineering.  Afterward, I attended Purdue on an NSF Fellowship and obtained a Masters in Chemical Engineering.

My industrial background came next during 5+ years with Shell Chemical in Houston, where I did and supervised chemical process design and development and managed chemical plants.  The entrepreneurial bug in me, however, made me realize pretty soon that I was better off being my own employer, so I went back to school at Harvard’s Doctoral Program in Business.

I wore a T-shirt that said “Harvard, because not everyone can make it into MIT” while pursuing my business doctoral studies at Harvard Business School teaching management of technology to the MBA students.

However, just short of submitting my doctoral thesis, bigger opportunities in form of the world’s first energy crisis beckoned me back to Texas.




Houston - the Bayou City - has been my home ever since.  I founded several companies including Phillip Townsend Associates, Inc. a leading global benchmarking company and Townsend Solutions, a global consultancy on plastics and materials.
 

I was also chairman and part owner of a large utilities services company which had 2,000 employees across 23 states in the US for clearing and maintaining electric distribution lines.


Some of my other fun ventures include Wild Phil’s Buffalo Ranch.